How to avoid a tax headache
An increasing number of families who are renting out their homes to enable them to move elsewhere may be facing a big tax headache.More people than ever before are following this route because they cannot sell their homes at the right price during the current credit crunch. The problem is that they may have to pay capital gains tax when they eventually decide to put up the For Sale sign.There is, however, a way to beat the nightmare. Homeowners should ensure that they rent out their homes for only a short period - up to a maximum of three years. So long as you stay within this time limit you will not have to pay capital gains. The fact is that the last three years of home ownership are deemed to be for private use whether a family lives there or not.Because of the housing depression many homeowners are facing the difficult choice of wanting to move but being unable to sell their property. Often they will let out their home and find another house to rent where they need to live. Usually the rent received covers their mortgage payments, so overall the household budget may not suffer.Yet when they finally sell their home they could be hit by the burden of capital gains, depending on how long they leave it. If they sell after the three years there are still other letting reliefs that can be claimed.A word of caution, though - if you are thinking of letting out your home you may need the consent of your mortgage provider.