I want to move my family to a slightly larger family home with a garden, but having recently become self-employed I have been told by my mortgage lender that I will not be able to move my mortgage to a new property. However, they have agreed to me letting out my home for a period of up to twelve months (on the existing mortgage). Therefore, I have decided to look into letting my house and renting another for us to move to. So I am trying to look into the tax implications of this. Will I be liable to pay tax on the rental income? Can this be offset against my mortgage costs? How will the move affect my capital gains tax obligation when I come to sell my house?

You will be liable to pay tax on the rental income. The interest you have to pay your mortgage lender can be offset against the gross rental income you receive from the tenant, and you are only liable to tax on the net rental income. If this arrangement is only going to last for up to twelve months, and then you are going to sell your original home within the twelve-month period, the capital gains when you sell your house will not be affected. The reason is because the last eighteen months of ownership of a qualifying principal private residence are exempt from capital gains tax (i.e. the ‘final period exemption’), even if you are not living in the house, and even if you are renting it out.