Should I change one rental into two?

by Readers Question

10:00 AM, 22nd September 2014
About 4 years ago

Should I change one rental into two?

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Should I change one rental into two?

I currently have this situation: Should I change one rental into two?

Two properties, both on homeowner mortgages

Property A :
Purchased Dec 2010
Was my sole residence until DEC 2012 when I let it out
Purchased for £90k
Now worth £135k

Property B:
My current residence
Purchased April 2014
Purchased for £142K
90% LTV

Now in around 6 months time, Id like to get Property C, most likely a student letting property, cost circa £70k. I had planned on releasing equity from property A for the deposit and to do some remedial work (basics, no more than 5k worth). This additional borrowing would obviosly be at around 4% intrest.

Now someone mentioned to me that I MAY be better off selling property A, making around £40k profit as this would not yet be liable for CGT (having lived there within the last 3 years) and then buying two cheaper 70k student properties, thus avoiding the 4% for borrowing the additional etc?

Or do I have it all wrong and I’m better sticking to my original plan?! Minefield!

Thanks

John McDonough



Comments

Mark Alexander

10:10 AM, 22nd September 2014
About 4 years ago

Hi John

If you sell property A then you will need to declare the sale to HMRC. As of last year the tax free period reduced to 18 months from three years. However, given that you lived in the property before letting it you should also qualify for lettings relief which effectively doubles your CGT free period. You will also have an annual CGT allowance so I doubt you will have any tax to pay but it is vital that you get your tax return done properly. If you need an accountant see >>> http://www.property118.com/member/?id=452

If you intend to maintain the status quo then you need to make sure you have consent to let property A from your residential mortgage lender. If you don''t they may be able to call in the loan for breach of mortgage conditions. You also need to check that your insurance is valid for lettings.

It is difficult to advise you further in isolation of all of the facts. For example, I don't know what your long term strategy is, what other assets/liquidity you have, what the net/gross rental yield is on the existing/new properties etc.

I do offer a private Consultancy service if you would rather not post all of your personal details on the internet - please see >>> http://www.property118.com/consultancy-mark-alexander/61522/
.


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