Hi
We currently live in the city and would like to move out to the country and build our "Dream Home" in the next 5 years. We already have the land and were thinking of building soon and then renting the property for a few years before we move back there. Is there major tax advantages in doing this, and what are the rules regarding making an investment property become your home? We would be renting to people we know and trust, so there would be no issue of our dream home becoming trashed. Obvioulsy with the approach that it will eventually become our home, we will over capitalise on it. What are the tax implications of doing this?
Thanks
To relieve you of any cap gains tax liability you should move in first and live there for awhile (I think 6 months), then you can move out and make it an I.P. You can rent it for up to 6 years without becoming liable for CGT.
If you rent it out straight away I don't think you can enjoy the CGT exempt status – talk to your accountant for a clarification.As for over-capitalising, I would caution you against doing this with any property, as life can get in the way and you may find you might need to access some funds, or sell, in the event of an emergency. The other problem is you may have trouble with finance for other investing if you decide to use some equity for investing later on.
One more thing; even though the tenants are known and trusted, get Landlord's Insurance and make sure there is an official Tenancy Lease in place.
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