My elderly Mother has recently gone into a care home and wants me investigate renting out her house. I am aware that any rental income will be subject to income tax at her marginal rate, but I am not so sure regarding the CGT & IHT implications. The following linked document seems to suggest that she could rent the house out for 3yrs without incurring any CGT liability if I am understanding it correctly? https://www.gov.uk/tax-sell-home/let-out-part-of-home
My other concern is whether renting out the property for a period would result in any loss of her Residential Nil Rate Band for IHT?
Renting Out Parents House - CGT & IHT
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- Lemon Quarter
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Re: Renting Out Parents House - CGT & IHT
I think that is correct. It used to be the last 3 years for everyone who rented their former main home, then it became 18 months, then it became 9 month. I'm also pretty sure that the CGT is pro-rata'd over the entire time of ownership, and you can deduct any expenses for improvements/extensions. So say she lived there for 16 years, then goes into care, rents it for 4 more years, then sells it, then only 1 year of 20 in total is CGT eligible so you pay tax on 5% of the gain, and not on "25% of the gain since she started renting it".EviesDad wrote:he following linked document seems to suggest that she could rent the house out for 3yrs without incurring any CGT liability
AFAIK renting the property out does not affect IHT, as the property is still counted as having a "Qualifying Former Residential Interest" for the RNRB (in the same way as selling it now still means the value can be claimed against IHT). The only issue I can thinkof is at what date it should be valued? Obviously the property (or it's value if previously sold) must be left to direct descendants to qualify.
Paul
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Re: Renting Out Parents House - CGT & IHT
Paul, thank you for the reply, most helpful.