Shall I sell my mortgage- free house or continue to rent it out?

08 September 2021

Question by Jeanette

I inherited a house 3 years ago free of all taxes, with a sitting tenant. The property is mortgage free. The tenant has now given notice to leave at the end of the Month. I was thinking of selling the property as would like to use some of the cash to mordernise the house I am living in, maybe buy a caravan and book a holiday. Then invest the rest. The house I live in is mortgage free and the only debt I have is £7300 in car finance and a couple of hundred on a credit card. Obviously I would pay these off as well. My adult children think it’s a silly idea and I will regret it.

Answered by Jeannie Boyle

Hi Jeanette
The great thing about rental income is that it can (although not always) provide you with a regular income stream on top of your wages or pension income. The downside is that being a landlord can be time consuming and stressful. It's also difficult to get at your capital - you can't just sell a bit of the house if you need to pay for something.

You've had the rental income for three years. Do you think you can live comfortably without that extra income now in retirement (if you aren't there already)? You can draw a regular income from an invested portfolio but it may not be quite as much as you'd get from the rent. You might find yourself spending some of the capital. The upside would be greater flexibility - you could draw out more if you want to go on holiday or a bit less in a quiet year.

Remember that you will have to pay capital gains tax on the difference between the probate value and the sale proceeds. You can take off the cost of the sale (estate agents & solicitor costs) plus any money you have spent that enhanced the value of the property. You will also be able to use the annual capital gains exemption which is currently £12,300. As you already own a property you will pay tax at 18% or 28% on the gain.

If modernising your home and buying a caravan are the things that will bring you joy in life, then it's important to find a way to do them without jeopardising your long term financial security.

A good way to work through this is to see an adviser for a cashflow planning session. This would look at your income, assets & spending requirement to work out the best way forward. It's more interesting than it sounds will help you understand the longer term impact of selling your property.

Answered by

Jeannie Boyle

Chartered Financial Planner

I'm a Chartered Financial Planner & Fellow of the Personal Finance Society. I work with people in Brighton, London & anywhere in between. My specialism is helping people align their money with their values. Many of my clients share my commitment to protecting the environment and investing to create a better future for our planet. My company, EQ Investors, has won multiple awards for our Positive Impact Portfolios and I have personally been recognised as a leading adviser in this sector.