# Renting out home for 5 years then moving back.



## IsleOfMan (21 Oct 2012)

We live in a 5 bed house with one bedroom in use. We were thinking of renting out our home for about a 5 year period and either renting a smaller property or purchasing a smaller property. Maybe do some travelling. We are both retired and neither of us has an income but will have a deferred pension that will kick in, in about 5 years time.
If we go down this route and move back in to our home in 5 years time does it immediately become our home for tax purposes or do we have to live in it for a period of time before we are not liable for CGT should we decide to sell?
Any observations or advice or opinions would be very much appreciated.


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## shesells (21 Oct 2012)

CGT is calculated based on the percentage of time rented out of a total of time you have owned the property. The tax is on profit made on sale price v purchase price (which with most properties in negative equity is unlikely to be much).

For example, if you've owned the property for 15 years, but it was rented for 5, then the tax (currently 25%) is paid on 33.33% of the profit as it was rented for 1/3 of the time it has been owned.


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## Bronte (22 Oct 2012)

What is your aim on renting out the house, is it to get some extra income?  You've no mortgage presumably so you would pay a lot of tax on that income, particularly if you are already in the higher rate tax band.   Are you sure that is a good idea?  

You'd need to post some figures if you want more concrete advice.  

Downsizing is certainly a very good idea for retirees.  A 5 bed home needs a lot of work and maintenance.


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## IsleOfMan (22 Oct 2012)

Thanks Shesells. At the back of my mind I had this thinking that after renting out your private home and paying tax on the rental income that when you moved back and had lived in it for a year or a few years that it would not be liable for any CGT if you then decided to sell it. Was this ever the case?

If I were to rent out another property to live in in addition to renting out my home can I offset the rent that I would be paying against the rent that I would be receiving for tax purposes.

Bronte. If you read my opening post you will see that I state that I have no income.


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## shesells (22 Oct 2012)

ParkLane said:


> If I were to rent out another property to live in in addition to renting out my home can I offset the rent that I would be paying against the rent that I would be receiving for tax purposes.



Unfortunately not, and tax relief on rent paid is being phased out totally. As you are not currently renting you would not be entitled to claim it at all.

Bear in mind that as well as income tax you would be paying NPPR (currently €200 a year), Property Tax and PRTB registration costs on your house if you rented it.


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## Bronte (22 Oct 2012)

Sorry parkland I missed the bit about zero income.  If you currently live in the home do you receive social welfare?  If you rent it out and you live elsewhere then you may be means tested on the value of the house and could lose entitlement to social welfare. 

Would you be better off selling and downsizing?


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## oldnick (22 Oct 2012)

Parkland - 

Rarely is there any benefit in letting one's bigger property and renting a smaller one -even if, in your case, there's no income tax on the rental income as you'd be under any threshold (I'm assuming you'd be asking 15-20.000 depending on the property and location).

Generally, an average five bedroomed house only gets about 50% more rent than a two bedroomed apt in the same area. Indeed, unless you're in a really top notch area  the rent for five bedrooms seems quite low compared to two bedroomed apts .Look at daft.ie.   Say you get 18.000 euros - you'd probably pay 12.000 for a two bedroomed, maybe more.

You still have to pay maintenance on the 5bed. There's be wear and tear on the home  and I doubt that after five years you'd retain the furniture and carpets when you return. Plus there's the CGT aspect explained previously.

Not really worth it. I think Bronte's suggestion- sell the house and get a smaller place- is best.
And use the extra money for exciting travels !


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## T McGibney (22 Oct 2012)

shesells said:


> .. and tax relief on rental income is being phased out totally.



Sorry, I don't understand this?


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## IsleOfMan (22 Oct 2012)

Bronte said:


> If you currently live in the home do you receive social welfare? If you rent it out and you live elsewhere then you may be means tested on the value of the house and could lose entitlement to social welfare.


 

Are all Social Welfare entitlements means tested? Can a person be means tested on the *value* of a house?


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## IsleOfMan (22 Oct 2012)

Oldnick. We would expect to get between €3k and €4k per month for our house, maybe a little more based on similar properties for rent in the area.  
The idea would be that we would rent for about €20k per annum and have about €20k per annum left over after renting our own home. We really are looking for somewhere to lock up and head off to Spain for a month or two. Even after paying various taxes we would have enough money left over to modernise our home after the 5 year term.
In a way we are looking for caretakers for our home.


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## oldnick (22 Oct 2012)

Wow ! I take back everything i said.
If you can get 40.000 or possibly 50.000 p.a. then it's worth doing as you suggest,even with some income tax payable on that amount. 
(A pity that you don't qualify for rent relief -pretty minimal anyway- and as shesells states, is being phased out anyway.)

And certainly not worth selling what is obviously a fine property as it seems that desireable family homes in better locations are edging forward at present.


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## shesells (22 Oct 2012)

T McGibney said:


> Sorry, I don't understand this?



Apologies, typo. Tax relief on rent paid, have corrected original post.


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## Bronte (23 Oct 2012)

ParkLane;1293107 We would expect to get between €3k and €4k per month for our house said:
			
		

> There is an awfully big gap between 3K and 4K and you say you might even make more? That's the top end of the Irish market, most likely corporate. Have you done your research on this, do you know that this type of rent is achievable.
> 
> Let's say you get 36K (or 48K). What will you be left with after tax and charges?
> 
> ...


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## IsleOfMan (23 Oct 2012)

"Have you done your research on this, do you know that this type of rent is achievable"

Yes.

"And so need 20K to live on. But on a rental of 36K that's not possible? What would you do if the tenant suddently left the property leaving you with no income."

I never said that I needed €20k to live on.

"Are you receiving anything from social welfare?"

No.


"Why are you trying to hold onto the house?"

It's a nice house. Hopefully in 5 years time prices might have increased somewhat. Plus a few other reasons.


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## IsleOfMan (23 Oct 2012)

oldnick said:


> And certainly not worth selling what is obviously a fine property as it seems that desireable family homes in better locations are edging forward at present.


 
Thanks Oldnick. I have been reading various threads over a period of time including yours on your Florida property. You are always worth reading.
It just seems such a waste having 5 bedrooms plus 4 reception rooms and only 1 bedroom and 1 reception room in use. 
I have moved house a number of times over the years when my family was growing but these have now left home. I had thought that when this time came that I would then go in the opposite direction and start moving back downwards in stages. Now that I have got to this stage I find the thought a bit scary.

I kind of resent having to pay all the various taxes that goes with these actions so I was thinking of doing something different. It's not just about money though.

Is it normal to make a dramatic downsize and go from a large house to a small house or best to do it in stages.

In these times I am not sure that I want to leave my house vacant for long periods of time if I head off abroad.


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## oldnick (23 Oct 2012)

Parklane..

I,too, have a large house with just me,retired, one wife and a 19 yr old who  may one day leave (although we have forbidden her to do so until she marries a medical consultant). I've asked my daughter if she wants to continue living in this house for long with her parents. She replies "no, I'd rather be alone so please leave".

I want to downsize. My wife does not. 
- I tell her that maybe in a few years we'll be facing property charges of 10.000 euros which is what one pays in much of USA and in France for houses of this value, and UK is not far behind.
- I point out that painting and decorating,renovating,keeping warm take time, money and effort whereas a new smaller energy efficient house makes far more sense.
- I mention the money we could make if we downsize (more if we just rent a place) which could go towards longer stays abroad.
- I advise her that inheritance tax is increasingly rising with ever lower thresholds and that perhaps in a few years our (one) child will pay a fortune in taxes.

Her counter argument is that his is her home which she loves, and, in her declining years (which she emphasises are far behind mine)  she doesn't want to live in a  box as she's going to be buried in one anyway.
Plus, she adds, our house is large enough to constantly accommodate (her) relatives from UK. (A good reason I want a small house)

So we stay in a large old three storey period house. 
Logically, it makes sense for older people living alone in large homes to downsize. Emotionally, it is a different matter. 

And  I confess that despite my many clever arguments for moving into a passive heat modern house, I - like you - would be fearful late in life in making such a move.

Only I'd never admit it to her.


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