Sell unmortgaged investment property to buy new one to get tax relief?

[Foxirl]

I have just signed contracts on a new house valued at 270,000 but got it for 257,000. I will have a 25 year mortgage or 237,500 @ 4.75%. This will become my PPR

I have put my old house up for sale and the current asking price is 300,000 but I don't expect to get that in the current conditions. Its been on the market for 3 months now and no offers yet and have dropped price. Will drop more after Christmas.

If I do not manage to sell it I would like to rent it out but this is where my problem lies. Firstly I have no mortgage on this house so therefore would not be able to use any mortgage interest to offset against rental income even though I would be paying a lot of interest on my PPR. Secondly if I start to rent out the house I would have to pay CGT in the future if I sell. This would be quite high due to the fact that I bought this property about 10 years ago and the value has gone up substantially. Around 200%.

Financially I feel it would not make sense to rent out my old property but instead to sell it and use the money to pay off my mortgage on PPR and then to buy a new investment property. Am I correct in this?? I know I would have to pay stamp duty but I believe I would have recovered this in the first few years from the savings I would make on the interest savings from my mortgage.

Any thought on this would be appreciated

 

[ClubMan]

Re: Buy new Property. Sell old one?

Financially I feel it would not make sense to rent out my old property but instead to sell it and use the money to pay off my mortgage on PPR and then to buy a new investment property. Am I correct in this??

In what specifically? If you mean is this a good idea then it's hardly a yes/no answer without a lot more detail about the specific properties involved, crunching the numbers to assess the viability of the plan etc. etc.

I know I would have to pay stamp duty but I believe I would have recovered this in the first few years from the savings I would make on the interest savings from my mortgage.

You believe or you have calculated this to be the case?

Any thought on this would be appreciated

Have you read this key topic?

Sell home or keep as an investment?

 

[Brendan Burgess]

Re: Buy new Property. Sell old one?

Your question is interesting. "If I have an investment property worth €100k without a mortgage, am I better off selling this and buying another one for the same price with €100k of borrowed money to avail of interest relief".

It's complicated by the fact that this is currently your PPR.

Foxirl - if you do the calculations yourself and post them on Askaboutmoney we can comment on them.

Brendan

 

[asdfg]

Secondly if I start to rent out the house I would have to pay CGT in the future if I sell. This would be quite high due to the fact that I bought this property about 10 years ago and the value has gone up substantially. Around 200%.

Not necessarly

Calc of CGT is Gain * Time as investment - 12 / time owned (in months)

Gain Calc as (Selling price - Expenses) less (Purchase price + expenses) Legal & Auctioneers Exps

You should also be aware of your annual tax obligations

See [broken link removed]

 

[boruce]

You would not have to pay CGT when you rent out the property as long as you sell it within a year of it ceasing to be your PPR, so rent it out on a short lease until the property market recovers a bit, which hopefully it should do in the first half of next year (fingers crossed) as for having no mortgage so not being able to off set tax on rentqal income, - it would still be better to recieve some rent as opposed to leaving the place empty where you earn nothing

 

[webtax]

- it would still be better to recieve some rent as opposed to leaving the place empty where you earn nothing

the only problem is you would have to leave the place furnished, register with prtb, advertise & vet tenants, do tax returns etc: a lot of work & expense if only renting for short-term. plus you have to assume that tenants will keep it in a presentable condition and that the property market will improve next year.

re selling and buying another investment property: this may make sense (but you would need to look at your exact figures and consider your own circumstances, what you would do with the sale proceeds, rentability of new property etc). your tax relief on 5% interest on €300k mortgage (12k) would be €5,520 year 1 (tax & prsi @46%, other expenses ignored) so it would take you just over two years to 'save' back the stamp duty.