2 Choices

LoppyLugs3

Dear Fellow Moneysavers,

Any advice on this issue?

The scenario is... A parent dies, leaving the family home to their six children. There are two options.

1. Selling the house and dividing the proceeds up six ways.

2. Some of the children retaining the house and buying out the stakes of the others.

How would you advise pursuing option 2? What are the pros and cons of this course of action?

Thanks.

:cool:

booksurr

what does the will say must happen?

Red_Spider

I would start with getting an independent valuation..

Savvy_Sue

booksurr wrote: »

what does the will say must happen?

It's a question, but given that the beneficiaries can go for a Deed of Variation if they want to do something different it's not necessarily a definitive one.

I agree I'd start with an independent valuation or three: what would this property be likely to sell for on the open market? Can those who want to buy it raise their shares? Are those who want to buy it in agreement over what they're doing with it once they own it?

xylophone

Has the house been recently valued for probate?

LoppyLugs3

The will says all the parent's assets must be divided equally between the six children. The house has been valued for probate.

It looks like five of the children would be happy to keep their stakes in the house with one child keen to 'cash out' now.

Is it just a case of having the house valued, then if it is worth say £300,000, paying the sixth child £50,000? The five other children are now the joint owners. Would this arrangement need to be legally validated through a solicitor to avoid future disputes? Or would all six children need to be represented by a solicitor each?

If in the future one of the five stakeholders in the house also cashes out, would their money be subject to capital gains tax - even though it comes from an inheritance?

Any observations/suggestions as to how this option 2 scenario can be achieved would be welcome.

The five children are in agreement they will keep their stakes in the house for the time being and withdraw them when the need arises. This might be in two, five or ten years time depending on individual circumstances.

If five out of the six are happy to keep the house, they have the funds to pay the sixth person for their share.

Thanks.

xylophone

If there are other assets/cash to the value of the share, it might be easiest to vary the will such that the house is left to the children who want it with cash/other assets left to the one who doesn't.

However, five individuals owning a house? It seems a recipe for future headaches - the best solution might simply be for the executors to sell the house and divide the proceeds equally.

And there will be CGT considerations in the future when the house (shares in the house) is sold.

Savvy_Sue

Supplementary question, who is / are the executor(s)? Professionals or family?

I agree this sounds like a recipe for disaster somewhere down the line (and I will explain why later), but xylophone's suggestion of varying the will could be a good one if you insist ...

LoppyLugs3 wrote: »

The will says all the parent's assets must be divided equally between the six children. The house has been valued for probate.

It looks like five of the children would be happy to keep their stakes in the house with one child keen to 'cash out' now.

While a valuation for probate is useful, if I was wanting my 'stake' now then I'd probably want a share of the open market value, if that was higher. And that could get interesting. If there's IHT to pay, then hopefully there is not too much difference between the two values.

LoppyLugs3 wrote: »

Is it just a case of having the house valued, then if it is worth say £300,000, paying the sixth child £50,000? The five other children are now the joint owners. Would this arrangement need to be legally validated through a solicitor to avoid future disputes? Or would all six children need to be represented by a solicitor each?

Until probate has been granted (has it?) then the house belongs to the estate. I'm not sure that five owners can be listed on the Land Registry (but I think not), so there would need to be a Deed of Trust drawn up to protect the interests of each owner. I'm sure any good solicitor drawing up such a deed would suggest that each party to it needs independent legal advice.

LoppyLugs3 wrote: »

If in the future one of the five stakeholders in the house also cashes out, would their money be subject to capital gains tax - even though it comes from an inheritance?

The CGT clock starts ticking from the date of death and how each person received that share is irrelevant. It's the increase in value between date of death and date of disposal which is subject to CGT, although being shared between five people would obviously mean that the amount might be nil or quite small.

But someone had better be keeping good records: value at date of death, value at date of any disposal - because if someone cashes out after a couple of years, and someone else after another couple of years, those still holding a share will have to know what the value was at each of those points. I'm not explaining this terribly well ...

LoppyLugs3 wrote: »

The five children are in agreement they will keep their stakes in the house for the time being and withdraw them when the need arises. This might be in two, five or ten years time depending on individual circumstances.

But what are The Five going to do with the house? What if house prices collapse at the time someone wants or needs their share?

LoppyLugs3 wrote: »

If five out of the six are happy to keep the house, they have the funds to pay the sixth person for their share.

But if one of the others wants a share in a couple of years, will the remaining four be able to buy them out? And so on. Without a crystal ball that's hard to be sure of.

Some of the problems of part owning a house you don't live in: if you divorce or need to claim means-tested benefits, that's part of your assets and has to be declared. You may not be able to liquidate what's tied up in it, so that could have a serious negative impact on your finances.

A house needs maintenance: I was listening to a friend describe the problems with their beach hut, which their grown up children now use - one of the children has carried out all the maintenance each year while another lives abroad but brings the grandchildren 'home' each summer and expects to be able to use it for several weeks.

If it's to be rented out, there are tax implications, and serious legal obligations as a landlord, not to be undertaken lightly.

I'm sure there's more ...

LoppyLugs3

Thanks for the replies. Probate not granted yet. Executors are myself and my sister, although we are using a specialist firm to help us with the probate process.

I had (naively) assumed this must to the kind of situation which crops up quite frequently - a family wishing to keep the parental home after someone passes away - but it seems to be fraught with complex problems.

As Xylophone says, "Five individuals owning a house? It seems a recipe for future headaches - the best solution might simply be for the executors to sell the house and divide the proceeds equally."

Might have to go back to the drawing board on this idea. I think I had a nostalgic attachment to the house and it is also in London, where none of us can afford now to buy a property.

Thank you, Savvy Sue, too for some very good points.

Keep_pedalling

Don't hang on to it for sentimental reasons, with so many people involved something is likely to happen down the line that will force a sale, better to have a clean break now.

PS. are there any tax implications here, or did you accidentally post this in the wrong forum?

kidmugsy

Five owners? My impression is that English law allows up to four. You may care to google that point.