Renting before selling your home

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Q: Our house has been on the market for some time and despite interest, no offers have been made. However, we do have a potential buyer who cannot buy for 18 months to two years as their cash is tied up, but they are willing to rent in the interim. What would be the tax implications if we rent the property for two years before selling it? We purchased our house in 1999 and have lived there throughout. Mr & Mrs Anon, Jedburgh

A: When an asset is sold the difference between the purchase price and the sale price, the gain, is subject to capital gains tax (CGT). However for your main home a relief called principal private residence relief (PPR) is available and this generally means that no tax is paid on any gain assuming you live in the property throughout.

There are some factors to consider, including if you move out of the house before your sell it. This may be because you have already moved to another house, or in this case you are renting the property.

Where this happens you are allowed an 18 month period prior to the sale where the house is still treated as your main residence.

This means that if you sell in 2016 having rented the property for two years, you will have owned the property for 17 years, and 16½ out of 17 will be exempt from CGT.

In addition, where your main home is actually let for any period, it is possible to claim letting relief. This can give relief of the higher amount of the taxable gain, the PPR relief given or £40,000.

Finally, as the house is in joint name you will both have annual allowances of £11,000 before any tax becomes due.

Rennie Welch LLP accept no liability on the basis of this article and detailed advice, taking into account individual circumstances, should be obtained before entering into any transaction.

Email your queries to thebusinessbrain@renniewelch.co.uk.