Is my SB CIL liable if I rent out out old house?

[Tony K]

Happy new year all. 

As per the question above, we own and live in House A. We built House B to live in. Not long after getting planning permission for House B I also got a CIL exemption certificate from the local Council. Obviously, the exemption is based on House B being a self build, and also (from memory) that it would be our main home or only property. 

 

It is the last bit that I am interested in. I always intended to sell House A once we moved into House B, but am not thinking about whether to explore renting it out instead. 

 

Would I be liable to pay the CIL on House B if I kept House A and rented it out?

 

Cheers

[nod]

No 

But it would be liable for capital gains when you sell A

Where as if you sold A moved into B No CGs 

[Alan Ambrose]

Suggest you read the threads here using "CIL Legislation" as the search term.

 

The CIL legislation uses phrases like principal residence and sole or main residence. (You can always read the legislation yourself.) These don't seem to have been tested in the courts much yet (for CIL).

 

IMO LPAs seem to make it up a bit re CIL and CIL teams are often quite aggressive, so they may fancy punting it in the courts. I have had one otherwise competant commercial property lawyer say to me "we can't advise re CIL" as though it were not part of property law. So, you could easily find yourself being a test case. Fine if you're OK with that. Of course, you could ask your LPA's CIL team first if you want to be sure ... but then you've put them on notice.

[Alan Ambrose]

>>> But it would be liable for capital gains when you sell A

 

From memory ... apportioned between the time you had it as a primary residence (tax free) and the time you rented it (CGT applies). There used to be a grace period, but I think that isn't the case now.

[Tony K]

2 hours ago, nod said:

No 

But it would be liable for capital gains when you sell A

Where as if you sold A moved into B No CGs 

 

Thanks @nod and @Alan Ambrose.

I am aware that CIL regs are a little unclear, hence my asking on here. As you say I must, if nothing else, consider whether I am comfortable with that uncertainty. 

 

One question on your responses above - I am aware that I avoid CGT if I sell House A, but I am thinking of renting it out. Do you mean to say that I would then be liable to CGT later on down the line if/when I ever sell House A, or that I would be liable to CGT once I start renting it out?

 

 

[Russell griffiths]

As far as I’m aware. 
from the day you rent it out until the day you sell it you are liable for the CGT that has arisen from any increase in value. 
 

so you move out and it’s worth £500,000

you rent it for 5 years and decide to sell, you get it sold for £600,000, so you pay CGT on £100,000

plus you will pay income tax on any money earned from the rental, but you can claim certain expenses as it’s now a rental property and not your principal residence. 
 

best to talk to your accountant. 

[nod]

37 minutes ago, Tony K said:

 

Thanks @nod and @Alan Ambrose.

I am aware that CIL regs are a little unclear, hence my asking on here. As you say I must, if nothing else, consider whether I am comfortable with that uncertainty. 

 

One question on your responses above - I am aware that I avoid CGT if I sell House A, but I am thinking of renting it out. Do you mean to say that I would then be liable to CGT later on down the line if/when I ever sell House A, or that I would be liable to CGT once I start renting it out?

 

 

Yes if and when 

Otherwise there’s nothing to stop you renting A out 

 

 After we comped our first build We wanted to add our home to our rental portfolio We sought legal advise Regarding the cil and Capital gains 

As we fully intended selling our build at some stage and moving back to our original home while we built again 

The Gist of it was The Cil would be unexpected as long as we didn’t sell before the three years BUT our original home would be treated like any other of our rentals should we decide to sell CGs 

 

[Tony K]

Thanks all. I am aware that renting is not necessarily easy (particularly given that we will be living next door at House B, and so be contactable by tenants morning, noon and night, even if I use an agent, and also will be constantly looking to see if the House A is getting well looked after or not). I am also aware renting out is nor always lucrative in the short term. I have undertaken my SB on the basis that House A will be sold, therefore.

 

Now that I actually come to it though, I want to be sure. I have made contact with an accountant and am awaiting a reply. If anyone knows of one that is good on this sort of thing, please let me know.

 

[ProDave]

41 minutes ago, Russell griffiths said:

As far as I’m aware. 
from the day you rent it out until the day you sell it you are liable for the CGT that has arisen from any increase in value. 
 

so you move out and it’s worth £500,000

you rent it for 5 years and decide to sell, you get it sold for £600,000, so you pay CGT on £100,000

plus you will pay income tax on any money earned from the rental, but you can claim certain expenses as it’s now a rental property and not your principal residence. 
 

best to talk to your accountant. 

It is NOT that simple.

 

HMRC just take your original purchase price (which could be a LONG time ago) and your sale price, and draw a straight line and assume the gain has been linear throughout your ownership.

 

Then the period of time it has not been your principle residence is charged pro rata CGT.  the actual calculation to make it so is in true hmrc fashion a bit more complicated.

 

The point of that being there could be a house price crash and you then sell it for less than it was worth at the start of letting it, but tough the hmrc calculation still shows an overall rise since you bought it donkeys years ago so you still pay on the "gain" while it is let.

 

CGT allowance is now pitifully low so you almost certainly will be liable for some CGT and it has to be paid very swiftly after the sale, no more waiting until the end of the financial year as it used to be.

 

We did this with our old house, as at the time we could not sell it, and like the OP we could see old house from our new house.

 

It was not what we wanted to do but the best offer we had at the time and I would not want to do it again.  BUT 6 years of rent from it before it sold did wonders for our final retirement position.

[Tony K]

19 minutes ago, ProDave said:

It is NOT that simple.

 

HMRC just take your original purchase price (which could be a LONG time ago) and your sale price, and draw a straight line and assume the gain has been linear throughout your ownership.

 

Then the period of time it has not been your principle residence is charged pro rata CGT.  the actual calculation to make it so is in true hmrc fashion a bit more complicated.

 

The point of that being there could be a house price crash and you then sell it for less than it was worth at the start of letting it, but tough the hmrc calculation still shows an overall rise since you bought it donkeys years ago so you still pay on the "gain" while it is let.

 

CGT allowance is now pitifully low so you almost certainly will be liable for some CGT and it has to be paid very swiftly after the sale, no more waiting until the end of the financial year as it used to be.

 

We did this with our old house, as at the time we could not sell it, and like the OP we could see old house from our new house.

 

It was not what we wanted to do but the best offer we had at the time and I would not want to do it again.  BUT 6 years of rent from it before it sold did wonders for our final retirement position.

 

Thanks @ProDave. 

 

If it's not too personal a question, what was it about the whole thing that makes you say you would not want to do it again?

[ProDave]

I had had enough of being a landlord.  Having previously owned 2 buy to let properties for a number of years, I have a low opinion of the average tenant and their inability to look after a property that they do not own, and the (usually avoidable) repairs needed at each change of tenants.

 

That and the added raft of legislation a LL has to comply with, including paying to be registered as a LL (In Scotland)

 

The final straw is end of no fault evictions, so if you let your house, then decide you do want to sell it, don't bank on being able to evict the tenant quickly, if they don't respond to you asking them to move out, then it has to go through court to get an eviction order etc.

 

You might be fine with all that, we were not, we just wanted it sold but circumstances dictated what we had to do, but thankfully it all ended well.

[SBMS]

Our LA are very clear that CIL is payable if you no longer ‘occupy’ the residence. They specifically call out renting it out as a CIL triggering event. 
 

How they would find out is another matter but I would not risk it. 

[ProDave]

14 minutes ago, SBMS said:

Our LA are very clear that CIL is payable if you no longer ‘occupy’ the residence. They specifically call out renting it out as a CIL triggering event. 
 

How they would find out is another matter but I would not risk it. 

But he is talking of renting out his former home, not the self build with the CIL exemption.

 

The question is does owning and letting another property affect the CIL exemption on the self build?

[SBMS]

9 minutes ago, ProDave said:

But he is talking of renting out his former home, not the self build with the CIL exemption.

 

The question is does owning and letting another property affect the CIL exemption on the self build?

Sorry completely misread house B with A.. long day! I would say you’d be absolutely fine then as you’re occupying it as your principal residence. I think the legislation states that it must be 

 

 occupied by P as P’s sole or main residence.

 

The qualification is or and therefore sole is only supplied to make clear that if it is your sole residence it must also be your main residence. But if it is not your sole residence it must be your main residence. I’d say it’s pretty clear.

[SteamyTea]

Not read all of the above TL;DR

 

if you can rent out a place for a number of years, and make more money than the the CIL or capital gains is going to be, then rent it out.

If you can't, then sell.

Treat it like a business, not a tax avoidance scheme.

[SBMS]

2 hours ago, SteamyTea said:

Not read all of the above TL;DR

 

if you can rent out a place for a number of years, and make more money than the the CIL or capital gains is going to be, then rent it out.

If you can't, then sell.

Treat it like a business, not a tax avoidance scheme.

Renting out now won’t really ‘offset’ any CGT (there is none) as CGT is future gains that you haven’t yet realised. What you’ve got to really look at is whether the return on your investment renting it out (less income tax of course) inclusive of any appreciation in capital value (less CGT at that future stage of course) is better than an alternative investment, such as stocks, shares, pension contribution, fixed income etc. Also bear in mind that rental income can push you into an additional rate. Not a problem if you’re income is less than say 80k but if you get pushed over 100k you’re going to lose out on personal allowance, additional rate and any benefits such as child tax credits, nursery allowances etc (might not be relevant).

 

Rental yields are currently very high so if there is no borrowing on property A it’s likely a good investment. Interest rates are high so if you have outstanding or planned borrowing on property A you might struggle to make

a return that beats stocks and shares or even potentially a fixed rate cash account!

 

Be under no illusion as well that being a landlord is no small task. I would never manage the portfolio myself and I would certainly never live next door to my tenants. But YMMV.

Edited January 8 by SBMS