Yes if you have lived in a house that has then been rented out then the period of ownership is apportioned between periods you were there and periods rented. Also the last 3 years of ownership will be treated as if you were there (even if you are not) After working out the above you then also get another exemption see here (usually £40k) - HM Revenue & Customs: Capital Gains Tax relief on your own home So initially you would have a gain of £100k but then apportioned between ownership (including last 3 years) and rental period. The rental period would be taxable but then gets the letting exemption. Not sure what you mean in the second paragraph. Regardless of the LTV you invested £100k. The interest you pay is allowable against rents. You sell for £200k you gain in theory £100k. One other thing though. When you start letting the property you are treated as having gifted the property into a letting business at original cost (some argue should be the market value on the day but Revenue don't agree). So like any other 'business' on day one there will be an amount owing back to you, ie cost of the property less the mortgage outstanding. You can get relief on an additional mortgage of that amount even if secured/used on another property. eg property cost £100k, mortgage £40k. You are owed £60k on day one. Lets say you buy a new home. £60k of that mortgage can be treated as returning the capital owed to you by the letting business.... Hope that helps!
Many thanks Ozz. 2nd paragraph was more a question around the fact that my current mortgage is for approx 55% of the property value, so is quite low and therefore the theoretical profit after deducting mortgage interest payments is potentially high. So I am more asking myself, I guess, if I should release more of that original deposit equity and get a higher mortgage and then get less rental income profit and therefore pay less tax on the rental income. Need to now sit down with an accountant and the figures and decide whether to keep the capital tied up and pay income tax on the rental income and get the reward in greatly reduced CG at time of sale, or release it and pay less income tax and more CG tax... That is assuming I am reading your post and the HMRC guide properly (but it is very late, and am a little bit tired) hope that makes more sense! Advice greatly appreciated, and obviously no liability assumed, etc, etc.
With the release of equity I get its just choice but obviously more mortgage, more interest and you will only get tax relief at whatever your tax rate is so pay £1000 extra out in interest you only save £200 or £400.... You can always PM over figures etc. I do a lot of 'long distance' client work these days and quite often let properties where owners working abroad - one who is in Bahrain who I have never met but do exactly this for example...
