Renting Out Parents House - CGT & IHT

[EviesDad]

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?

[DrFfybes]

he following linked document seems to suggest that she could rent the house out for 3yrs without incurring any CGT liability

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".


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

[EviesDad]

Paul, thank you for the reply, most helpful.