New landlord advice

[Anthony]

Bit of a technical question here. Any advice would be greatly appreciated.

I have recently let my former home on an AST. I had the place valued before I moved out at £127500. Rental income is £400/month (well below market but he is a reliable tenant with great references).

The mortgage interest only comes to about £200/month but I am loath to remortgage to a higher sum as I am tied in for another 12 months, the mortgage is about £46000.

I have purchased another place to live in, on which I am paying interest of around £500/month, plus repayment.

Question 1. As my rental property business has started out with assets of 127500 - debts of 46000 (81500 investment) can I claim tax relief on that amount of my residential mortgage, that is, the £200 interest from the let property mortgage plus a proportion of my new residential mortgage interest which is equal to the £81500 equity which I have invested in the rental business?

Question 2. I lived in the rental property for nearly 4 years and it was my main residence. The price has risen from £48000 to £127500 in that time (as evidenced by an independant valuation taken immediately prior to letting the house out). Will my capital gains tax burden in the future be worked out from the value of the house when it became a rental business, or will they sting me for the whole rise since buying the place 4 years ago?

What measures should I take to reduce my CGT liability? I currently envisage holding the property until I retire as it is easy to maintain and manage, however anything can happen and if I need to sell I would like to pay Brown as little as he pays me.

Like I said, a bit techical!

Thanks in advance to any replies,

Anthony.

[F-Prop]

I think you need the advise of a qualified accountant on that one!

I do know that if you transfer property into a Ltd company you will pay CGT (which is why I haven't!!!) And I _think_ that if you have lived in the property (i.e. it's been your primary residence) and then rent it out, then CGT only will only apply after 3 years.

I'm no accountant so I may be wrong!

Trevor.

[nick c]

Hi Anthony

We have a selected supplier list of accountants on this website - http://www.residentiallandlord.co.uk/accountants.htm

Sherena Glanton (Plym77) has been a great help on this forum, she could advise you, and the company Sherena works for - Horwath Clark Whitehill can help with any tax issues you have.

sherena.glanton@horwath.co.uk

Hope this helps

nick.colthorpe@residentiallandlord.co.uk

Partnership Manager

[Whitey]

The short answer for both of those questions is 'no'.

CGT is based on total profit since buying the property.

This sounds bad but you need to bear in mind that you will get tax relief for the periods you were in residency and for the last 3 years of ownership.

So, for example, if you had your property for 7 years but lived there for the first 3 you would receive relief on 6 years (72 months out of the 84).

Hope this helps. However, this is only my understanding, so please do seek professional guidance.

[plym77]

Hi

My name is Sherena and I am a Chartered Tax Adviser. I have been away on holiday so apologies for the delay in replying.

In answer to your questions

1. Possible yes - people think you cannot claim interest attached to your residential mortgage, but it is possible - depending the the value of the rental property when it was first let.

2. CGT is basically based on the sale price, less cost, improvements, legal costs, stamp duty etc. You the get a further discount for Principal Private Residence Relief (in your case the 4 years lived in plus the last 36 months by virtue of the property having been your PPR at some stage). Plus as the property has been your PPR, lettings relief of up to £40k per owner (so if you are married, your spouse will also be entitled to this) - depending on various factors. Also taper relief and finally CGT annual exemptions are avialable.

It may be advisable that you have your situation reviewed in order that you can ensure that the best possible ownership propertions are in place - this is of particular importance if you are married, also if you and your spouse earn dramatically different incomes.

Should you require further help, please do contact me on sherena.glanton@horwath.co.uk, providing specific details I can then email you back with a competitive quote for reviewing your circumstances and providing you with any necessary advice.

Regards

Sherena