Renting or Buying: The Break-Even Years and the Tax on the Way In

The all-staff email, and a deposit that has been ready since March

The savings have been sitting there since March and the tenancy renews in November, so the decision had a date on it and a shape. Then the all-staff email lands. The team is being consolidated into the other office. Timing to be confirmed, probably inside eighteen months, possibly two years, nothing decided. Nobody used the word relocation and everybody read it. The November question has not gone away, but it has changed: it is no longer whether the deposit is enough, it is whether you would still be living in the house long enough for the money handed over on completion day to have been worth handing over.

Leaving a tenancy and leaving a house are not comparable operations, and the difference is not sentiment, it is duration. Ending a monthly tenancy in Ontario takes sixty days' written notice ending on the last day of a rental period, under the Residential Tenancies Act, 2006. Ending a fixed-term residential tenancy early in England or Wales takes a break clause, if one was negotiated into it, or a surrender the landlord agrees to — and the two are no longer the same regime, Wales having replaced assured shorthold tenancies with occupation contracts under the Renting Homes (Wales) Act 2016. Both are numbers you can look up before you sign. A sale has no equivalent: it has a listing date, an offer that may or may not come, a chain, and a completion date that is a matter of other people's solicitors. Renting buys a known exit at a known cost, and that is most of what its extra monthly cost is buying.

So this page is not about whether to buy. It is about the one number that decides the answer for anyone whose horizon is short and uncertain: the break-even year, the point at which the fixed costs of getting in and out of a property have been earned back by whatever ownership gives you that renting does not. Below that year, buying loses on arithmetic alone, whatever anyone says about dead money. Above it, the comparison becomes a judgement about a household rather than a sum.

Price the round trip, not the purchase

The mistake is to budget for the way in and treat the way out as a problem for later. It is one transaction with two ends and you pay for both. In: transfer tax, conveyancing and searches, a survey, a lender product fee, the van. Out: the agent's commission, conveyancing again, an energy certificate, possibly an early repayment charge on a fix you leave mid-term, and the van again. Add both ends and you have the round trip — a fixed sum that buys nothing at all, whose only variable is how many months of ownership it gets divided across.

That division is worth doing before anything else because it is the one calculation on this page that needs no forecast. A round trip is a fixed cost. Held for two years it is one number per month; held for fifteen it is a rounding error. Nothing about the property changes between those cases — only the denominator, which is exactly the thing the all-staff email has made uncertain.

The table below takes a £320,000 purchase, assumes a round trip of six per cent of the price for entry and exit together, and divides. Six per cent is not a published figure and is not a claim about your market; it is a placeholder to show the shape, and the point of the exercise is to replace it with the sum of your own quotes. The right-hand column sets the result against a rent of £1,300 a month, because that is what the number is competing with.

Read the second row first. On a three-year horizon the cost of moving in and out again runs at £533 a month, two-fifths of the rent itself — before a single mortgage payment, before council tax, before the boiler. This is why the monthly comparison most people start with, and which the next few sections do get to, matters far less over three years than over fifteen. Over three years the round trip is the decision.

The tax code has an opinion about how long you stay

Three jurisdictions, three unrelated statutes, all turning on the same thing: how many days you owned it. This is the part of the decision most often discovered afterwards, because none of it appears in a mortgage illustration or an agent's brochure and all of it is set out in law you can read in advance.

In the United States, section 121 of the Internal Revenue Code excludes gain on the sale of a principal residence up to $250,000, or $500,000 on a joint return, but only where you owned and used it as your principal residence for at least two of the five years ending on the sale. Sell inside two years and the exclusion is not simply lost: section 121(c) gives a reduced exclusion where the sale is by reason of a change in place of employment, health, or unforeseen circumstances, and Treasury Regulation § 1.121-3 provides safe harbours for it, including a test where the new workplace is at least fifty miles farther from the home than the old one. For a household whose move is a corporate consolidation that is the difference between a taxed gain and an apportioned exclusion, and it turns on facts best documented at the time rather than reconstructed later.

The United Kingdom and Canada each draw the line elsewhere. Private residence relief under the Taxation of Chargeable Gains Act 1992 covers the period a property was your only or main residence plus a final period treated as though you still lived there — nine months at the time of writing — which is what protects a seller whose old home takes time to sell after they have moved. Canada instead penalises speed: the residential property flipping rule at subsections 12(12) and 12(13) of the Income Tax Act treats a residential property disposed of within 365 consecutive days of acquisition as inventory, so the profit is business income rather than a capital gain and the principal residence exemption does not apply. It carries exceptions for named life events, a work relocation among them, tied to the Act's eligible relocation concept and its forty-kilometre test — and an exception you intend to rely on is worth reading in the source first.

The exit has a duration, and nobody will quote you one

Every cost at the entry end can be quoted before you commit. Almost nothing at the exit end can, and the largest item is the least knowable. Estate agency commission is negotiated commercial pricing with no published schedule anywhere; in England, Scotland and Wales the Estate Agents Act 1979 requires the agent to give you the terms and the fee in writing before you are bound, and check whether that fee includes VAT at the standard rate under the Value Added Tax Act 1994, because one quoted excluding it is a fifth larger than it looks. In the United States commission is likewise negotiable, and the practice changes following the settlement in the Burnett litigation against the National Association of Realtors removed offers of compensation from the multiple listing service and required a written buyer agreement before touring.

The second exit cost catches anyone who fixed their rate for longer than they end up staying. An early repayment charge is a contractual term rather than a penalty at large; under MCOB 12.3 of the FCA Handbook it must be a reasonable pre-estimate of the lender's cost of early repayment. It is stated in your offer as a percentage of the balance, usually stepping down each year of the fix, so if the horizon is three years and the fix is five, read that clause before signing rather than when you instruct the agent. Portability is a feature of some products and not a right, and where it exists it is subject to a fresh application on the new property.

Then the smaller certain items. An Energy Performance Certificate is required before a property is marketed for sale or let in England and Wales under the Energy Performance of Buildings (England and Wales) Regulations 2012, and conveyancing on the sale side is a second full fee rather than a discount on the first. Material information has to be assembled for the listing under the National Trading Standards Estate and Letting Agency Team's guidance, and the parts of it needing a document — a lease, a completion certificate, a guarantee — are quicker to gather at purchase than to chase at sale. In the United States both sides' settlement costs appear on the Closing Disclosure prescribed by Regulation Z at 12 CFR 1026.38.

What none of this gives you is a duration, and the duration is the real exit risk. Time from listing to completed sale is local, seasonal and not reliably published for a street, and in a chain your date is set by the slowest link. A relocation with a start date and a house that has not exchanged costs money in one specific way: two housing costs at once, for an unknown number of months.

1. Get the agent's terms of business in writing before instructing — fee, whether VAT is included, tie-in period, and what kind of agency agreement it is.
2. Read the early repayment charge schedule in the mortgage offer, write the figure for each year of the fix onto the round-trip sheet, and ask the lender in writing whether the product is portable and on what conditions.
3. Book the energy certificate and assemble the lease, completion certificates and guarantees before listing, not after an offer that is waiting on them.
4. Ask two local agents what the last three comparable sales took from listing to completion, and carry the longer answer into your break-even sum.

If it will not sell, will it let?

The fallback everyone reaches for is to keep the house and let it until the market improves. It is sometimes the right answer and never the simple one, because it converts a home into a small business with its own consents, standards and tax treatment, all arriving at once.

Start with permission, because it is the fastest to check and the easiest to breach. A residential mortgage is written on the condition that you occupy the property; letting without the lender's consent to let breaches the mortgage conditions, and consent, where given, is often for a defined period and sometimes with a rate change attached. The buildings insurance rests on the same assumption and needs to be told, and a leasehold property's lease may restrict subletting outright. In England and Wales a let property must also meet the minimum energy efficiency standard under the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 — band E at the time of writing, with proposals to raise it consulted on repeatedly.

Then the money changes shape in two places at once. Rental profit is taxable income, and in the United Kingdom an individual landlord can no longer deduct mortgage interest from it: the restriction introduced by Finance (No. 2) Act 2015 replaced the deduction with a basic-rate tax reducer, which for a higher-rate taxpayer is materially worse than the arithmetic most people do in their head. And if you then buy at the new location while still owning the let property, the additional-dwellings rates apply to that purchase — £22,000 rather than £6,000 on the example above — recoverable only if the first property sells within three years. Letting out postpones the exit, which is a reasonable thing to want. It does not avoid the round trip, and the surcharge makes the postponement expensive in its own right.

Doing the break-even honestly

The sum has three terms and the temptation is to fill in the one that flatters the conclusion. Break-even arrives in the year the round trip has been repaid by three things together: whatever owning costs less than renting each month, if it does; the capital repaid into the loan over the same period; and any change in the value of the property. Two of those can be computed to the pound today. The third is a forecast, and it is what makes most rent-or-buy comparisons unfalsifiable.

So set it to zero and see what happens. With no price growth, the £320,000 example repays £463 a month of capital and costs £663 a month more than renting — a real cash gap of £200 against the tenant — while a round trip at six per cent of price runs at £533 a month over three years. A three-year purchase does not break even on those figures, and it is not close: growth would have to do the entire job. Run the same house at ten years and the round trip falls to £160 a month while the capital repaid rises, and the arithmetic changes character without a single assumption about the market.

One term deserves naming rather than leaving implicit. The deposit is not free while it sits in the house — it could have been earning something elsewhere, and that forgone return is a cost of owning no mortgage statement shows. It is why a household that buys, holds two years and sells at the same price has not broken even: it paid the round trip, forwent the return, and recovered only the capital it repaid.

1. Compute the entry tax exactly from the current table for the actual jurisdiction and buyer situation — the only round-trip line you know today — then quote the rest of the entry end and price the exit end from the agent's terms and the early repayment schedule.
2. Divide the total round trip by the months you expect to hold the property, using the shorter duration you can imagine rather than the one you would prefer.
3. Run the monthly comparison against your real rent, then subtract the capital repaid per month over the same window so you are comparing costs with costs.
4. Set price growth to zero. If the remaining terms do not repay the round trip inside your horizon, the case for buying rests on a forecast and should be described that way out loud.
5. Repeat the sum at the holding period a relocation would impose at the worst possible moment — normally around eighteen months after completion.

What a short horizon is actually worth

The conclusion this arithmetic usually reaches is unfashionable and worth stating without hedging: on a horizon of two or three uncertain years, renting normally wins, and it wins on fixed costs rather than on anything philosophical about ownership. The round trip does not care how good the house is. Neither does the transfer tax. Both are paid in full whether you stay two years or twenty, and only one of those denominators makes them small.

Which does not mean the deposit should sit still. It means the November question is not the one it looked like in March — not renew or buy, but what the deposit should be doing while the relocation resolves itself. And if the job does move and the answer becomes buy, you arrive at it with the entry toll computed, the exit priced, and a break-even year you worked out rather than hoped for.