I am looking to let the property my wife and I currently own, and buy a new property.
The situation is:
House A - My wife and I purchased our current residence in 2001 for £150000. The mortgage has £75000 left to pay. The house is now valued at £250000. We now wish to let our current house for the next 2 years. We will sell the House-A in 2013.
House B - we will buy a new property which will become our new primary residence.
Questions are:
Q1 - Captital Gains Tax on House A - If for example House A does not increase in value much (or even declines) between 2011-2013 will I be liable for CGT only on increase in those 2 years, or will I be liable for 10/12ths of the total gain since we bought it in 2001. So am i effectively paying CGT for the bumper increase years while the property was my principle residence?
Q2 - Extend Borrowing on House A - As there is only £75000 left on the mortgage, interest payments (for which i would claim tax releif) are very low. Can i legitimately increase the borrowing (i.e. remortgage) House A to the maximum, say for example to £200000, so that I can have higher interest payments and more tax releif. I would be therefore putting more borrowing on House A, and reducing my borrowing on House B (where of course there is no Tax releif).
Q3 - Put House A in Wife's name (lower rate tax) - I am a higher rate tax payer, so is it possible to put House A into my wife's name, so that all the income from letting is against her income tax allowances instead of mine.
Thanks,
AK.
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PRR
Q1. House A will attract PRR and thus 36 months relief from CGT read HS283. I note you say my house in the title, then 'we' in Q1, please clarify. It will, if you let it for more then 36 monts, attract Letting relief of up to a max of £40,000 per owner. Any CGT calculation in the future is based on the acquisition cost not the vlaue when you rented it out. Any gain would be apportioned to account for your period of actual and deemed residence.
Q2. You will need permission from your mortgage provider to let the property out. Some just agree or charge a fee, other change your mortgage to a but to let and a higher interest rate. Yes you can remortgage up to the vlaue of the property when first let and deduct the interest. The use of the equity is not restricted by HMRC.
Q3. Can be acheived with a 'Declaration of Trust' defining the 'Beneficial Interest' in the property without cause to obtain permission from the mortgage provider as the legal ownership remains the same. Form 17 required to HMRC. Remember that if 'you' have no beneficial ownership then if you let longer than 36 months, you will not be entitled to any LR and even then ony LR based on the gain on your share of the beneficial ownership.
Hope that helps. Regards Peter