Hope somebody can help me with a complex problem. In July 2005 we bought a house to convert and modify for us to eventually move in to with our two autistic sons. It has taken us until middle of last year to get it all ready however now that it is we have been unable to sell our current home to move in. We do not have a mortgage on the property we have converted but have a large mortgage on our current home which is impacting us financially. A friend of ours is looking to rent short term which would ease the burden on us and allow us to move, however, would this open us up to capital gains or have any other implications? The rent they would be paying would be well short of our mortgage payments but at least it would help. Any guidance would be much appreciated. Thanks. Dave.
Yes, you will pay tax on the rental income commencing straight away by informing the IR ASAP.
Yes, you will be liable to capital gains tax if you sell your second property.Currently 18% on any profit but you have a tax allowance off-set. You have to declare your primary residence for tax purposes.
There are many and varied tax reliefs on all of the above which you will need to find out about. Mel.
Thanks for the reply. Given that our mortgage is £1200 a month and the rent would be about £750 I guess it's not financially viable to do. Looks like we'll have to leave our newly converted house empty until this one is sold to escape all that tax. (although in Kettering, where we live when our property was valued three years ago for the mortgage it was £300,000 and we can't sell at £285,000 so we've hardly made a profit) Thanks again. Dave.
Hi DeeDoubleYoo. You will need to take professional advice but firstly you will be able to offset your mortgage interest (but not any capital repayments) against the rental income. As your mortgage payments are so much higher than your anticipated rental income it looks like you will not be liable for tax on the rent - but you will need to file the appropriate tax returns and declare the position. As far as CGT is concerned, unless the rules have changed recently (and I won't claim to be wholly up to speed) provided you sell the house within three years then you will not pay CGT on this as it was your principal private residence continuously until you vacated. I hope this helps, but as I said do not take it as read and do take proper advice.
