subject: Financial Savings Of Renting Out Your House [print this page] If you're currently a customer with one of those loan companies , your current mortgage repayments should be very much cheaper compared with if you are a professional landlord . And you won't have to prove the rent can meet the mortgage payments , as you would with a buy-to-let mortgage .
Unfortunately , some other lenders , such as Halifax , examine the situation on a case-by-case basis and may decline to consent to let . Which means you may be enforced to remortgage to an expensive buy-to-let deal , possibly acquiring penalties as well for redeeming your mortgage early .
To stay away from this threat , you will be tempted not to reveal to your lender you are renting out the property .
Sadly , you are legally obliged to do so . You must ask for a 'consent to let' - unless you let them know , you find yourself in breach of the situations of your mortgage contract , according to the Council of Mortgage Lenders , which claims lenders are "very most likely to ask you for retrospectively an increased rate of interest" .
None of the lenders we spoke to ( like Halifax ) actually claimed they would do this - and certainly it is actually difficult for a lender to understand whether or not you are living in the property -- but the reality continues , it is illegal not to inform your lender .
Making it absolutely vital that you inform your buildings and contents insurance provider , as otherwise any loss or damage caused by the tenant to your property or to others' property may not be covered .
Rent out your home as a buy-to-let
Capital Gains Tax
You normally have to pay Capital Gains Tax ( CGT ) -- now levied at a rate of 18% for basic rate taxpayers or 28% for higher rate taxpayers -- when you sell a property which is not your private residence .
However , you don't have to pay CGT on a property you have lived in , if you sell it within three years of moving out .
And , even if you sell it after those three years are up , you would qualify for Letting Relief on 40 ,000 of the gain , on top of your usual CGT Allowance ( 10 ,600 for this tax year ) .
How do you work out 'the gain' ? This is extremely complicated , but here's a simplified explanation :
1 . Figure out the difference between the price you bought the property for and the price you sell it for . That is the overall gain .
2 . Work out the proportion of time you have let it , in relation to the amount of time you have owned the property . Then divide the overall gain appropriately .
For example , let's say you have owned the property in your sole name for 20 years and let it for the final eight years . For the final three years it was let , the property was still classed as your private residence - so , for tax purposes , you can subtract these three years from the eight years you have let it .
That means , for tax purposes , you have actually only let the property for a quarter of the time you have owned it ( in this case , five years out of the twenty ) . So you should divide the overall gain by four .
Confused ? Here's a worked-out example . The property was worth 100 ,000 when you bought it 20 years ago and it is now worth 320 ,000 . You lived in it for 12 years and rented it out for eight years . After your private residence relief is taken into account , the gain would be 55 ,000 . Your Letting Relief and CGT Allowance would come to 50 ,600 in this tax year and you're a basic rate taxpayer so you'd pay 18% CGT on the remaining 5 ,000 -- a total tax bill of 900 on a 220 ,000 gain . ( Thanks to readers JonEBehr and Ray126 for all their help with this calculation ! )
What's more , you wouldn't need to pay any CGT at all , if you could prove to the Inland Revenue that you couldn't occupy the property for any reason ( for example , if you got a job abroad or in another part of the country ) . There are complicated rules if you rent or buy another property , however , as you can only have one private residence at a time . So I would strongly advise you to seek the services of a chartered accountant .
He or she will also be able to advise you about the income tax expenses you can offset against your rental income . ( Your accountants' fee being the first such expense . )
