House Renting & Capitol Gains
Discussion
I find myself in a situation. I have been trying (unsucessfully)to sell my house. Next month I am moving in to a new house with my Partner. The house we bought was <> the sum of monies from both house sales, so we have taken out a loan to cover the missing sum.
I heard on R4 recently that you have upto 3 years to sell you 'main residence' whilst living somewhere else before CGT kicks in. Is this true? And how would the figure be effected if I took it off the market now & rented it out for 2 years, then tried to sell it again?
TIA
K1 CERB
I heard on R4 recently that you have upto 3 years to sell you 'main residence' whilst living somewhere else before CGT kicks in. Is this true? And how would the figure be effected if I took it off the market now & rented it out for 2 years, then tried to sell it again?
TIA
K1 CERB
As I understand it, you have to have it valued the day you leave, and the capital gains tax is only on the profit made after that.
And yes I believe you have 3 years. We're going to be in the same position next year, moving to a converted barn, but I'm not ready to sell this yet, plus its our pensions.
And yes I believe you have 3 years. We're going to be in the same position next year, moving to a converted barn, but I'm not ready to sell this yet, plus its our pensions.
anonymous said:
[redacted]
Why does everyone say this ? I am sure in your case it is, but have you run the numbers that identify that you will get better return on your money in property over the next 20 years by holding an asset and maintaining it and covering voids, paying mortgages on them, CGT on them etc. rather than by active asset management ? Or is it just a hunch that property will outperform everything else in future, because it has before. ]
I tend to share your views on this .... I'm currently looking at my asset allocation (which is 70% in cash right now )
The returns from BTL just don't look compelling enough to me to invest in a portfolio....
Gross yields 4% - 5% in many areas of the South , which would reduce to 3% - <4% with voids and letting fees , less maintenance costs and insurance ...... so that gives you 2.5% to 3.5% ......maybe.
WELL under the cost of debt.....so it only stacks up if prices increase at well above RPI for the next 15 years .....hmmmmmm.
And I can't believe the numbers on new-build flats either .... the small 2 bed ones going up near me , which are not in a great area , overlooking the railway tracks ,no outside space .... are priced the same as a much larger 3 bed Semi in a nice leafy neighborhood. The flats are being sold as "good investment potential" .... my arse ..... the yields must be about 4% or less gross.
Once your home stops becoming your "main residence" but you still retain ownership there is a good chance that it will be subject to a CGT charge. However, there are lots of reliefs and allowances available (plus a number of extra-statutory concessions) which can go a long way to mitigating if not completely cancelling any taxable gains on the eventual disposal.
alfaman said:
And I can't believe the numbers on new-build flats either .... the small 2 bed ones going up near me , which are not in a great area , overlooking the railway tracks ,no outside space .... are priced the same as a much larger 3 bed Semi in a nice leafy neighborhood. The flats are being sold as "good investment potential" .... my arse ..... the yields must be about 4% or less gross.
Opposite our offices there are some new flats - www.sixty2.co.uk - all very nice and trendy but I beleive the one beds are going for £230,000 ... now excuse me but this is PBoro, not Notting Hill or Docklands ...
My three bed, 180-yo cottage with a garage on the outskirts would be roughly about the same ...
And the pics on the website are all very nice but iof you see the building from the front ... it still looks like a building site, although I did look though a gap in the boarding yesterday and spot the 20ft fish tank in reception ...
Similarly, in another part of town there are some new flats that have gone up - and the views are simply outstanding ... either the prison on one side or if you have a flat facing the other way, the main east coast railway line and Gala Bingo ... yet these are described as 'luxury'
My arse.
anonymous said:
[redacted]
The flats at Epsom station, voted best place to live in Britain and 'perfect' commute, are taking a battering on their resale values, the two people I know selling are looking at rental yields they will have to subsidise to the tune of about £4K a year or an all in capital LOSS of about £30K per flat (stamp duty, costs, loss of income on the equity capital).
They were supposedly cast iron investments. Er no.
The problem is that people see cheap money and just buy, buy, buy any old crap and have forgotten that prices may fall, interest rates may rise, they need maintaining, service charges need to be paid with tenants or not (and that you can;t just up the rent to cover increased mortgage costs) and that house prices will continue to rise as they have done. I am struggling to find suitable properties to do up at the moment, simply because other people are paying more for 'wrecks' and leaving no sensible margin to do them up and resell - because it's their pensions and it's only borrowed money (and they took the equity deposit out of their own home....). They may be right, but I doubt all of them are.....
My pet agent is telling me that in Bolton it's been stagnant since a summer 2004 peak and that volumes sold are low and that the only real sales market is people downsizing or selling flats to buy to let amateurs who don't appreciate that sale prices are stolid and that their flats are vastly overpriced for what they are getting. He's having a very quiet year......... [but near me, it's nuts at the moment]
do you still think there is any margin in "doing-up" property in the UK in the current market - and if so where ?
or what other assets would you invest in ? ( my personal view is *probably* shares outside of the UK are not a bad med term bet.)
MikeyT said:
alfaman said:
And I can't believe the numbers on new-build flats either .... the small 2 bed ones going up near me , which are not in a great area , overlooking the railway tracks ,no outside space .... are priced the same as a much larger 3 bed Semi in a nice leafy neighborhood. The flats are being sold as "good investment potential" .... my arse ..... the yields must be about 4% or less gross.
Opposite our offices there are some new flats - www.sixty2.co.uk - all very nice and trendy but I beleive the one beds are going for £230,000 ... now excuse me but this is PBoro, not Notting Hill or Docklands ...
My three bed, 180-yo cottage with a garage on the outskirts would be roughly about the same ...
Well said. There's some new flats being built on a very rough council estate in our town. They had a large billboard advertising them for £80k! It's since changed and now shows £50k shared ownership. Who exactly are they aiming these propertes at? No one who could afford an £80k mortgage is going to buy a property on a rough estate. Those that can't afford them will take the free council house option.
At the other end of the scale there were 100 luxury apartments built in a reasonable area overlooking the sea. The 2 bedroom (shoebox) Penthouse will set you back £345k though.
www.rightmove.co.uk/viewdetails-5840671.rsp/svr/2021;jsessionid=8C46F7D32C31B5D56B666321B36D2553?pa_n=1&tr_t=buy
Oh, and the Ground Floor equivalent which is actually larger is £200k cheaper!
Edited by Oakey on Thursday 20th July 11:09
For any residence that has at some point been a valid Principal Private Residence, the first and last three years of ownership are exempt from CGT. That's not quite the same as having "three years to get rid or you'll have to pay CGT". If you moved out and sold it a week later you would still potentially be liable for CGT, just not very much.
If say you had owned the property for ten years in four years time when you eventually sell it, then you would be liable to GCT on 1/10 of the realised gain. If you have been letting the property you can also deduct the lower of £40k or the gain during the letting period. Also remember you will get taper relief depending on how long you owned the property, so if you had owned it for ten years you'd would only be taxed on 60% of the gain anyway. Plus you have a personal allowance of £8,800.
So I wouldn't stress that much about the three years to sell it bit, unless you have had the property for a very long time and made a very sizeable capital gain.
If say you had owned the property for ten years in four years time when you eventually sell it, then you would be liable to GCT on 1/10 of the realised gain. If you have been letting the property you can also deduct the lower of £40k or the gain during the letting period. Also remember you will get taper relief depending on how long you owned the property, so if you had owned it for ten years you'd would only be taxed on 60% of the gain anyway. Plus you have a personal allowance of £8,800.
So I wouldn't stress that much about the three years to sell it bit, unless you have had the property for a very long time and made a very sizeable capital gain.
I am not an accountant however (just "interested" in buy-to-let) so best get professional advice!
Back to the original question ... we live in a house, and own a flat as well. We moved last year, and we didn't sell the flat when we bought the house.
If we have 3 years before CGT cuts in, can we short-circuit this by going back to live in the flat for a few months? This would then make it our 'primary residence' again.
Or doesn't it work like this?
And, on the other argument running on this thread, is property a good pension investment? Given the spectacular increases in price seen on some property in the last 10 years, it surely is a good investment (if the rise continues, which I see is the big proviso.) The flat I mentioned increased in price from £110k to £195k in 5 years - 77% increase, or 15.5%/year. That surely outperforms most other investments (without going into something mega-risky.)
Oli.
If we have 3 years before CGT cuts in, can we short-circuit this by going back to live in the flat for a few months? This would then make it our 'primary residence' again.
Or doesn't it work like this?
And, on the other argument running on this thread, is property a good pension investment? Given the spectacular increases in price seen on some property in the last 10 years, it surely is a good investment (if the rise continues, which I see is the big proviso.) The flat I mentioned increased in price from £110k to £195k in 5 years - 77% increase, or 15.5%/year. That surely outperforms most other investments (without going into something mega-risky.)
Oli.
Got to agree with your comments there Tonker....Saying that bigger risk = nigger returns if you want a punt.
alfaman : The properties in my area which are run down and in a terible state command a very very similar prices to propertis that are in good condition or evn those that have had renovations.
The thing is people are paying premiums for run down houses ! Madness ! I know you might want to change the house to your taste but no need to pay through the nose, when you have to get the bigger stuff done: electrics, plumbing, heating, roofing..
alfaman : The properties in my area which are run down and in a terible state command a very very similar prices to propertis that are in good condition or evn those that have had renovations.
The thing is people are paying premiums for run down houses ! Madness ! I know you might want to change the house to your taste but no need to pay through the nose, when you have to get the bigger stuff done: electrics, plumbing, heating, roofing..
zcacogp said:
Back to the original question ... we live in a house, and own a flat as well. We moved last year, and we didn't sell the flat when we bought the house.
If we have 3 years before CGT cuts in, can we short-circuit this by going back to live in the flat for a few months? This would then make it our 'primary residence' again.
Or doesn't it work like this?
And, on the other argument running on this thread, is property a good pension investment? Given the spectacular increases in price seen on some property in the last 10 years, it surely is a good investment (if the rise continues, which I see is the big proviso.) The flat I mentioned increased in price from £110k to £195k in 5 years - 77% increase, or 15.5%/year. That surely outperforms most other investments (without going into something mega-risky.)
Oli.
If we have 3 years before CGT cuts in, can we short-circuit this by going back to live in the flat for a few months? This would then make it our 'primary residence' again.
Or doesn't it work like this?
And, on the other argument running on this thread, is property a good pension investment? Given the spectacular increases in price seen on some property in the last 10 years, it surely is a good investment (if the rise continues, which I see is the big proviso.) The flat I mentioned increased in price from £110k to £195k in 5 years - 77% increase, or 15.5%/year. That surely outperforms most other investments (without going into something mega-risky.)
Oli.
you have 2 years from when you move to "elect" which is your main residence for CGT purposes etc , if past 2 years you will need to demonstrate that you are living in whatever property is your " main one " for tax purposes ( unless you buy a 3rd property when you can re-elect again )
Yes you could flick between 2 houses to manage the "3 year" rule , but you would actually need to physically change where you live.
As for property surelyoutperforming other assets in the long term ..... that just isnt really possible IMHO.
The main reason house prices have exploded over that past 10 year is that the cost of debt has dropped dramatically from 7 or 8% to 4 or 5 % - makes a huge difference to affordability - plus a bit of under-supply to factor in , and increased number of single households.
Now unless we are going to get Japanese style 0.5% interest rates (as if ), I doubt prices can continue to grow at above earnings .
IceBoy said:
The thing is people are paying premiums for run down houses ! Madness ! I know you might want to change the house to your taste but no need to pay through the nose, when you have to get the bigger stuff done: electrics, plumbing, heating, roofing..
Possibly because they all think a bit of double glazing, a cheap bathroom and kitchen suite, some white paint on the walls and some cheap carpet will double the price when they come to sell on?
anonymous said:
[redacted]
Tonker, I don't follow - what's the BoJ? And what's a falling interest rate environment? I am guessing you are saying that it cost us something to borrow the money to buy the flat - i.e. mortgage cost, hence the actual profit in %ages is lower. (Actually, it is without a mortgage, so this is not factored in, but I can see the validity of your argument.) And this ties into the point that Alfaman is making about the reason why house prices have gone up so much.
Which brings me on to
alfaman said:
you have 2 years from when you move to "elect" which is your main residence for CGT purposes etc , if past 2 years you will need to demonstrate that you are living in whatever property is your " main one " for tax purposes ( unless you buy a 3rd property when you can re-elect again )
Yes you could flick between 2 houses to manage the "3 year" rule , but you would actually need to physically change where you live.
So, if the flat and the house are physically close to each other, it would be viable? How long do you need to have lived somewhere for before it counts as your "Main Residence"? I.e. If we were to move in for a week between tenants (the flat is let out), change all the bank address details etc etc etc and tell the council so we pay council tax on the flat instead of the house, then move back again when some new tenants move into the flat, would that count? Yes you could flick between 2 houses to manage the "3 year" rule , but you would actually need to physically change where you live.
Oli.
Oli.
zcacogp said:
1. And what's a falling interest rate environment?
2. If we were to move in for a week between tenants (the flat is let out), change all the bank address details etc etc etc Oli.
2. If we were to move in for a week between tenants (the flat is let out), change all the bank address details etc etc etc Oli.
1. Its when interest rates fall.
It has a big impact on house prices due to mortgage affordability - e.g : if interest rates were (say) 10 % ( early 90's ) , then fall to 5% for a sustained period ( like now ) - house prices would more-or-less double , over and above basic wage-inflation increases.
which is what has happened ....people can now afford twice as much debt.
2. You need to speak with an accountant on that .....(FWIW , IIRC you can do that (a brief change of address )if its within the 2 year "election" period , but not after )
anonymous said:
[redacted]
Tonker , do you mean a rental yield of 7% (on cost )on something you have developed to then rent ?
or 7% margin on something you have developed to sell on ? ( e.g : sales price less all your dev. costs = 7% )
A lot of the property dev. stuff on TV suggests 15% - 20 % development margin is achievable ......seems optimistic to me .
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