capital gains implications after property transferred to joint names, brother and sis

michelle87_2

Hi i wondered if anyone could help us with some tax information. Myself and my brother inherited my fathers home last march after he passed away. The title deed is in joint names, myself and my brother. I, sis have my own house which i bought four years ago. Brother's main home is my dads property. We want to remortgage the property and I,sis have no disposable income to apply jointly for a mortgage. I may jeopardise any application. We have been informed that I could gift the property to my brother so he can apply for a mortgage in his sole name. Is their going to be an immediate CGT issue if i were to gift my half to my brother. We want to renovate it and then possibly let it out.
Any advice would be gratefully appreciated.
Thanks

michelle87_2

Just to say we are joint owners as tenants in common, equal shares 50, 50.

CLAPTON

Assuming your brother has sufficient income to get the mortgage, i see no reason why your making a joint application should be refused irrespective of your own income.
Have you actually asked a BS or bank or a broker?

As already mentioned if you gift the house to your brother you will have no legal entitlement to the house or any rent ..are you sure you want to do this?

michelle87_2

jimmo wrote: »

As is usual with CGT problems the obvious answer is that you need professional advice sooner rather than later.

You could gift your half share of the property to your brother but that will be a disposal at open market value. Your capital gain will be the difference between the open market value of the half share you inherited and the value of your interest on the day you gift it to your brother. Values of properties can sometimes not change very much in 12 months but equally, they can rise spectacularly and the extent by which the value of the property has changed may be a very important factor in your planning.

If Inheritance Tax was paid on your father’s estate the value of your half share on acquisition will be 50% of the probate value. However if Inheritance tax was not paid you cannot rely on the probate value. It seems to me quite common that where the estate is clearly below the IHT threshold an inflated property value is used because no IHT is payable anyway and an overvalue is more likely to be passed over by the IHT people than an undervalue.

An alternative strategy could be for you and your brother to make a deed of family arrangement. You’ll definitely need a solicitor for this. Don’t rely on me on questions of law but my understanding is that a deed of family arrangement can be made at any time up to 2 years from your father’s date of death. Effectively you can change your father’s will so that the property was entirely inherited by your brother. The beauty of that is that because he has lived in the property he will qualify for main residence relief. The drawback is that you will have no legal interest in the property. Any lettings profits will be his and the proceeds from any sale will also be his. He will have to pay Income Tax on the entire lettings profits and Capital Gains when the property is sold. If it is planned right he should be able to totally avoid Capital Gains Tax using main residence relief but any disposal by you will be fully chargeable, subject to the annual exempt amount. You will be relying on him to give you your half share in due course and, again, not my speciality, but the “gifts” to you of your half share will probably be gifts for IHT purposes.

Any professional tax advisor worth his salt on Capital Gains Tax matters will be fully aware of deeds of family arrangement. Present your problem to an accountant or advisor as you have done here. Don’t ask about a deed of family arrangement. If the advisor knows what he is doing he will bring it up and either recommend it or dismiss it on the basis of the information he gleans from you in your initial meeting.

jimmo

Thanks so much Jimmo, your advice is gratefully appreciated. i was not aware of a deed of family arrangement, and yes i will not mention this to advisors, solicitors etc to see if they are already aware. I am going to forward this mail to my brother to see what he thinks. As usual Jimmo you are a star as i see you have advised lots of people on this site. Thanks again.

michelle87_2

CLAPTON wrote: »

Assuming your brother has sufficient income to get the mortgage, i see no reason why your making a joint application should be refused irrespective of your own income.
Have you actually asked a BS or bank or a broker?

As already mentioned if you gift the house to your brother you will have no legal entitlement to the house or any rent ..are you sure you want to do this?

Well this option was because we thought we might not be able to get a mortgage due to my lack of disposable income. I am also self employed (sis) which doesnt help a great deal. We enquired about a renovation mortgage as property needs renovating but they said it would have to be both our main residences. So this is why i am confused because my main residence is, I suppose my main home that i bought four years ago. Still confused. Anymore advice appreciated. Thanks.

honestpaul

In response to the chappie that implies brothers are not honest some may not be but i am!!!!!

CLAPTON

its not simply a matter of honesty but circumstances change.
suppose the brother married and then tragically died... the house would then be the wife and the sister would have no claim or suppose he went bankrupt, the whole house would be lost to the OR rather than just his half.

RedTomato

Hello, sorry to jump on to your thread but I've got a question related to owning a property with sibling too. Would be grateful for any advice or advice on where I can get advice..

Inherited parents' property with Sis (joint tenancy on lease) and I have been living in it for 3 years. Plan to sell now. So, as far as I understand it, Sis will be liable for capital gains tax on the increase in value of her half of the property.

A couple of questions:
As she is married, can her and her spouse both claim their annual exemption against the profit or could they not get away with that as spouse's name not on lease?

There have been high service charges to pay on the flat over the past 3 years, can any of those be deducted before capital gains are calculated?

Thanks again.
RT

As for the brother thing - we decided that it was dangerous to take one name off the lease as you simply don't know what is going to happen in life. I had considered putting the property only in my name and then ensuring that my will left half the property to my sibling but that's still not a 100% "safe" option and of course lots of families don't like to discuss wills.

maypole

The more I think about this tax, the more it infuriates me. We take the risk and buy a property, we improve it and hopefully make a profit when we sell. THEN we have to give up part of that profit to the chancellor:mad: if we made a loss on the sale, they would not be compensating us witht the difference!