Hey UKM, sorry to hear about your relative.
I don't know if there are other factors in play here, so just wondering why are you ruling out selling the property now?
I have the same question.
Rents seem low compared to the value - I would think that selling this and investing elsewhere would get you greater returns.
Thanks for the well wishes Nameswhack.
In answer to the question, there are a few reasons. I'll start with the least logical and work backwards.
Firstly, my wife has a sentimental attachment to the property. As I stated, she doesn't want to live in the house at the moment but that's not to say she won't ever want to live there. This might change in a few years time when everything isn't so raw.
Secondly, she is also quite conservative. She doesn't have the same faith that I have in the stock market and is of the opinion that diversification of income is a good thing. She told me when I suggested this today that she would not consider putting a lump sum into index funds at all, she's fine with adding the rental income to our monthly investment amount though.
Finally a large amount of cash like the £200k from the sale would be difficult to deal with.
It would take approximately 10 years to get that in tax sheltered investment accounts (due to annual limits and what we already use of those limits) and in the mean time we would pay tax on both dividends and any capital gains made as we transferred the money over. This would be either 7.5% or 32.5% on dividends (depending on our earnings that year) and 18% or 28% on gains (again depending on our other earnings). We are not in the higher rate at the moment, but we aren't a million miles away. I'm 27 and she's 29 so our salaries are still rising quickly.
I hope that explains why we are likely keeping hold of the house, there are some workarounds to the above taxes however I work in tax compliance for the government and could lose my job if I don't do everything to the letter of the law.
In reply to the point about selling this and buying elsewhere, as we have inherited this house there are no taxes to pay on the 'purchase'.
The current government is trying to discourage buy to let and has recently introduced additional taxes for the purchases of second properties.
If we bought another property we would have to pay 5-8% of the value as tax up front, (on top of the other associated costs like estate agent fees, property surveys and so on).
It's also unlikely we would get something with a higher yield without looking at the more desirable suburbs around the city; we would also need a mortgage to afford those areas; another recent government move was to remove tax relief on mortgage interest for landlords.