Buying out someone's share of a house

kharyss

Hi

11 years ago I sold my house, paid off the mortgage and moved into the family home with my retired parents as their carer. They needed to raise funds for house repairs so we remortgaged using my income for the multiples and my name was added to the deeds.

After my father's death 3 years ago we moved into a smaller house, mortgage free, and my name was again put on the deeds. My mother is now ill and we have to face the fact that she won't be around for ever. We're at the planning for the future stage right now!

Her will splits her assets equally between my sister and me. I'd like to continue living in the house after her death but I'd have to take out a mortgage to "buy out" my sister's share. Not sure where to go from there though. So initial question's are:

1. Would this be classed as a remortgage since the house is mortgage free and I'm already on the deeds.
3. I'm intending on using full market value and paying an agreed percentage of that amount to my sister for her share. Would this trigger any capital gains tax issues for either of us?
4. House value is probably around £250k but if I'm already on the deeds and it's my only residence are there any inheritance tax or gift tax issues?
5. Would I have to pay stamp duty?
6. Is there anything else I'm missing here that needs to be taken into account?

I want everything to be above board and pay my sister the full value for her share, but mortgage income multiples will be fairly tight so obviously if there's additional taxes etc or huge legal bills I won't be able to stay in my home.

Any help or advice on how to do this or things I need to factor in would be very much appreciated.

Thanks.

Realopinion

I am sorry about your mum.

In short, if this is your main home:

1. For your purposes, it is a remortgage - ignore that there isn't a mortgage on it at the moment. All you want to do is get a mortgage registered on the title and free up the equity.
2. Did you miss this question?
3. There will be tax to pay so speak to a Tax specialist
4. It is difficult to offer a response without knowing how much you invested into the previous property when you were paying the mortgage - but you can argue a proprietary interest in the property which would mean of the £250k, you already own £X amount of it. This would mean the 50/50 would be for the balance. Speak to a tax specialist regarding any tax due
5. Did you pay stamp duty when you purchased the property in yours and yours mum's name?

Sorry to direct you to a tax specialist, that can seem unhelpful. When your affairs are complex it is better to speak to a specialist and get it right than listen to incorrect feeds and make decisions based on this.

All the best to you and your family.

RAS

kharyss wrote: »

After my father's death 3 years ago we moved into a smaller house, mortgage free, and my name was again put on the deeds. My mother is now ill and we have to face the fact that she won't be around for ever. We're at the planning for the future stage right now!

Her will splits her assets equally between my sister and me. I'd like to continue living in the house after her death but I'd have to take out a mortgage to "buy out" my sister's share.

Is the house held as tenants in common or as a joint tenancy?

kharyss

I don't remember any other paperwork being filed at the time we remortgaged other than the mortgage papers themselves, and my name being added to the house deeds. So I don't think we were ever "tenants in common" as such.

I'm guessing it would be fairly easy to go to a solicitor and get something drafted up though.

Mojisola

kharyss wrote: »

I don't remember any other paperwork being filed at the time we remortgaged other than the mortgage papers themselves, and my name being added to the house deeds. So I don't think we were ever "tenants in common" as such.

If you are joint tenants, when one of you dies the house will be completely owned by the survivor. The house won't ever be part of the deceased's estate.

kharyss

"In short, if this is your main home:

1. For your purposes, it is a remortgage - ignore that there isn't a mortgage on it at the moment. All you want to do is get a mortgage registered on the title and free up the equity.
2. Did you miss this question?
3. There will be tax to pay so speak to a Tax specialist
4. It is difficult to offer a response without knowing how much you invested into the previous property when you were paying the mortgage - but you can argue a proprietary interest in the property which would mean of the £250k, you already own £X amount of it. This would mean the 50/50 would be for the balance. Speak to a tax specialist regarding any tax due
5. Did you pay stamp duty when you purchased the property in yours and yours mum's name? "

Thanks for this - yes I did miss Q2. Got ahead of myself!

To be honest it's hard to work out how much I have put in. We remortgaged the old house for about £32k. I paid the repayments on that as my parents had limited income. I also paid some household bills and contributed to general living costs. However the old house sold for £400k which we used to buy the new house and to release equity for my mother. I didn't take a share of those proceeds. £32k as a flat percentage of the value of the old house is peanuts. How that would translate to the new house I have no idea!

Yes we did pay stamp duty on the new house when we bought it.

TBagpuss

The first thing you need to do is check how you and your mum own the house. If you own as joint tenants, then as Mojisola says, if your mum dies, the house will automatically pass to you, it won't form part of your mum's estate so your sister will not be entitled to a share of the house value - you and she would, under your mum's will, each get 50% of the other assets your mum has.

If you own as tenants in common then you each own a share of the property, and the deeds may show what that share is. If there was no explicit declaration, then the starting assumption is that you each own 50%, so you would need to think, now, about whether or not that accurately reflects the contributions you have made, and if no, discuss with you mum the possibility of drawing up a declaration of trust now, to define what % of the house you and she each own. Her share would then be split between you and your sister equally (if that is what you mum's will says)

If you own as Joint Tenants and your mum had not appreciated that this would deprive your sister of any share, then she can 'sever the joint tenancy' which is very straight forward and turns a joint tenancy into a tenancy in common,and in the absence of any other agreement, the presumption would then be that you and your mum each have a 50% interest.

If you and your mum do own as tenants in common in equal shares, and if her will does leave her estate equally to you and your sister, then you would have to raise a lump sum of 25% of the value of the house, to buy out your sister.

You would not pay CGT as you would not be disposing of an asset - you would be getting 25% of the house as an inheritance, and buying 25% of the house from the estate.
As the house is your main residence, you also won't pay CGT when you ultimately sell and move out.

The estate may have to pay Inheritance Tax, but as your Mum's share in the house is only worth around £125,000, this is unlikely unless she has very significant other assets, as her estate will be below the IHT threshold.

i am not sure about stamp duty.

RAS

Some thoughts

kharyss wrote: »

11 years ago I sold my house, paid off the mortgage and moved into the family home with my retired parents as their carer. They needed to raise funds for house repairs so we remortgaged using my income for the multiples and my name was added to the deeds. .

So at that stage although you were put on the deeds your share was 32/(value at the time)? There must have been some sort of assessment of the value when it was mortgaged?

Alternatively, check out how much house values in that area changed between 11 years ago and 3 years ago.

kharyss wrote: »

After my father's death 3 years ago we moved into a smaller house, mortgage free, and my name was again put on the deeds. My mother is now ill and we have to face the fact that she won't be around for ever. We're at the planning for the future stage right now!.

So at that stage you "owned" 32K times what ever the uplift/decrease in house values in the old house as your part of the property.

You also paid off the mortgage. What happened to the remining equity?

kharyss wrote: »

Her will splits her assets equally between my sister and me.

The house is NOT part of her estate for the purposes of the will, although it sounds like you want to play fair by your sister?

kharyss wrote: »

I'd like to continue living in the house after her death but I'd have to take out a mortgage to "buy out" my sister's share. Not sure where to go from there though. So initial question's are:

1. Would this be classed as a remortgage since the house is mortgage free and I'm already on the deeds.
3. I'm intending on using full market value and paying an agreed percentage of that amount to my sister for her share. Would this trigger any capital gains tax issues for either of us?
4. House value is probably around £250k but if I'm already on the deeds and it's my only residence are there any inheritance tax or gift tax issues?
5. Would I have to pay stamp duty?
6. Is there anything else I'm missing here that needs to be taken into account?

I want everything to be above board and pay my sister the full value for her share, but mortgage income multiples will be fairly tight so obviously if there's additional taxes etc or huge legal bills I won't be able to stay in my home.

Any help or advice on how to do this or things I need to factor in would be very much appreciated.

Thanks.

I think you need to talk to a lawyer and agreed a split (with mum and sister) then make it tenants in common.

You then get your part of the tenancy.

Both you and your sister also get half your mum's part of the tenancy and half the remaining equity.

RAS

Bagpuss put it rather better.

kharyss

TBagpuss wrote: »

The first thing you need to do is check how you and your mum own the house. If you own as joint tenants, then as Mojisola says, if your mum dies, the house will automatically pass to you, it won't form part of your mum's estate so your sister will not be entitled to a share of the house value - you and she would, under your mum's will, each get 50% of the other assets your mum has.

If you own as tenants in common then you each own a share of the property, and the deeds may show what that share is. If there was no explicit declaration, then the starting assumption is that you each own 50%, so you would need to think, now, about whether or not that accurately reflects the contributions you have made, and if no, discuss with you mum the possibility of drawing up a declaration of trust now, to define what % of the house you and she each own. Her share would then be split between you and your sister equally (if that is what you mum's will says)

If you own as Joint Tenants and your mum had not appreciated that this would deprive your sister of any share, then she can 'sever the joint tenancy' which is very straight forward and turns a joint tenancy into a tenancy in common,and in the absence of any other agreement, the presumption would then be that you and your mum each have a 50% interest.

If you and your mum do own as tenants in common in equal shares, and if her will does leave her estate equally to you and your sister, then you would have to raise a lump sum of 25% of the value of the house, to buy out your sister.

You would not pay CGT as you would not be disposing of an asset - you would be getting 25% of the house as an inheritance, and buying 25% of the house from the estate.
As the house is your main residence, you also won't pay CGT when you ultimately sell and move out.
.

Thanks for this - really helpful! I have a feeling the issue of joint/common tenants was never discussed or understood at the time but I'll get in touch with the solicitor who did the conveyancing and drew up our wills see if he can help answer that one.

It's always hard when dealing with family, but my sister and I are really close and I have absolutely no issue with giving her the full 50% of market value rather than a 25% share. If I am in a joint tenancy it's by accident rather than design so I don't see why she should be penalised for it. If it does apply I'm guessing the easiest thing would be to sever the joint tenancy, then get mum to change her will to leave her 50% solely to my sister. Then remortgage and pay her for her half.