How being an accidental landlord could land you with a surprise tax bill when you sell

If the British prefer to keep an old house as an investment, they may encounter a big tax bill.

Some people, especially those who act with a partner or partner, decide to keep it instead of selling a property when they sell a property – they become a ‘accidental host’.

Given the possibility of rental income and potential housing price growth, it may be a good investment, but when they come to sell in the future, it can be accidentally costing people.

The reason for this is that those who sell their main houses are entitled to full private housing assistance (PRR), which will protect them, rather than allowing them. capital earnings tax (CGT).

However, when they leave their property and sell, they lose their right Prr rights.

Eamon Shahir, the founder of TAXD, the self -assessment platform, is your protection against the capital income tax, and while you live in your home as your main housing, any increase in value when you sell is completely exempt from tax.

‘Here is the important difference: If you are still selling your home when you are in your main housing, no matter how increased it increases, you do not pay capital earning tax.

However, if you decide to start renting the tenants, you will not lose all this tax protection immediately.

‘The income and customs of the majesty share the earnings depending on how long you live and how long you rent.’

What does it mean to you

In housing ownership, the capital income tax is currently collected for 24 percent for taxpayers for taxpayers for taxpayers – but with a significant gain, it is likely that they will pay most of people at a higher rate.

The reason for this is the addition of a capital gain to a person’s normal income to decide on the tax rate.

Andy Wood, the international consultant of tax natives, “ Many host main houses always think that the tax -free, ” he said. And until you go out and rent.

‘This may mean a large CGT bill, sometimes tens of thousands of pounds, which usually comes as a bad surprise if you do not expect.’

According to Wood, many people choose to rent for a while instead of selling their homes.

“Maybe they moved with a partner, they got a job elsewhere or they don’t think it’s the right time to sell, or he adds.

‘It usually sounds like a short -term, low -risk choice. However, the tax position changes after moving.

‘You start to lose the relaxation you get to live there, and the longer the rented, the more taxable the earnings become.’

Andy Wood, International Consultant of Tax Natives

Can capital earnings eliminate the tax rental profit?

Ask an accustomed investor that he has earned more money in the last decade: rent or home price growth? The answer will always be housing prices.

For example, join a city like Manchester. According to land registration figures, real estate prices have doubled in the last 10 years, and in May 2015, it rose from £ 131,000 to £ 257,000 in May this year.

This means that the average property in Manchester has increased an average of £ 12,600 per year in the last decade.

In the meantime, according to Zoopla data, in 2015, the average rents of £ 815 per month in the city in 2015 are 1.143 per month.

This means that an average property rises from £ 9.780 to £ 13.716 per year – but this allows before tax, agent fees and maintenance costs.

Capital earnings tax can be collected from any profit made on an asset that increases when someone comes to sell.

It is not the total amount of money they receive, but the taxation earnings.

For example, someone who doubles home prices from £ 131,000 to £ 257,000 will pay 24 CGT 24 percent for £ 126,000, but there is an annual allowance exempted from £ 3,000.

To allow or sell: Although it seems to be a good idea to hold a house for those who will not sell, it can come back to bite them when they finally do.

Although the CGT invoice is low likely to destroy all rental profits, especially if the housing prices suddenly get up in a region, there are cases where it may be.

For example, a person who bought it in London after the 2008 accident, but who was carried by a partner and holds their homes may have found themselves in this prediction.

Between May 2009 and May and May 2016, the average London prices rose from £ 321,000 to £ 627,000. This is £ 306,000 in a period of 43,715 £ 43,715 per year.

In this case, the sold in May 2016 would encounter a 28 percent CGT invoice, albeit with an annual £ 11,100 per year.

This means that in such a scenario, potentially 82.572 £ CGT bill will be made on sale.

“This is capturing more people than you think, Andy said Andy Wood, one of the tax -native people. “ “ If your rental income is quite low, but if the property value increases, you may still have a large CGT bill when you sell.

“ “ “ Hosts rented £ 3,000 a year, but when they sell £ 30,000 or more taxes we have seen cases. This is enough to delete all the rental gains and then some of them.

‘It was used to help, but it was largely cut in 2020. Now, most of the earnings will be taxed at 18 percent or 24 percent depending on your income.

‘This is a big hit for something that may have started as a more stopgap solution.’

However, when someone moves from their main home, it should be noted that they will not lose all CGT relaxes.

They will lose during the years when the property is given, so when they sell it, they will have to solve the rate of time they live at home compared to the years they lived outside.

Prr is also valid for the last nine months of the property, whether or not the property is living or not – provided that the property has the main residence at some point.

For example, if someone bought a property in 2010 and sold it in 2025, this is a total of 15 years or 180 months.

If they live there for 10 years (120 months), they get PRR relief for 129 months (120 people they live in plus nine bonus moon). This means that 71 percent of any earnings will be completely taxed.

If they decide not to sell and rent the property, only 29 percent of the earnings representing the lease period will be subject to capital gain tax.

Eamon Shahir is the founder of the online accounting service tax

Could it still make sense to quit your previous home?

Ultimately, avoiding a potential CGT invoice should not be the main reason to decide that a property will not be kept rather than selling.

If someone can benefit from rent income and think that the house will increase the value in the future, there is a controversial reason to keep it as an investment.

“CGT is not necessarily an agreement,” says Shahir from Taxd. ‘This really depends on each individual’s special condition, and after understanding how the CGT works, it can still make sense to keep a property as a rental.

With CGT, you are only taxed from the value of the property, so you never get worse because it has.

The question is whether the rent income and the remaining capital growth are valuable.

He adds: ‘The continuation of the property price usually works well to ensure your property because you have purchased the post -tax rental return or purchased the properties years ago and banking the important tax -exempt gains that have lived there.

“On the other hand, it may not work if your property does not see that most of the gains and values of your property are still or weak rental returns.”

According to Shahir, there are some oddities that will benefit some people more than others.

He says’ CGT has a great advantage that can provide great savings, since CGT has only been calculated on earnings since 2015. ‘And if you move abroad for business and then return to live on your property – you will still be entitled to PRR.

‘It depends on the long -term target for most people. Keeping the property and may be good as additional rental income and potential CGT or PRR assistance is available. Each individual should analyze, evaluate or seek tax support. ‘