Help...i need guidance how to split profit

kitkat76

Hi All,

I would like your help. I have made a very stupid mistake by getting into a financial arrangement which is complicated.

For a background, my dad and I bought a property valued at 186k. He put in 30k deposit plus 10k to pay for expenses.the 10k we both deemed as my loan from him. We didnt draw up any agreement due to trust (stupid mistake!!)
I aplied and paid for the mortgage. I ended up renting the property and kept the £80 profit from it every month for 4years. I paid all extra costs but when a tenant defaulted payment and have to take him to court, I have to borrow extra £5k from my dad. In agreement that I will pay him back when I get the money or when we sell the flat.
Fast forward, He got ill in Dec and we needed to sell. I manage to sell the flat for 286k. After agency fees and balance to the property managers( 6k) we are left with 129k.
Now we are having a difficulty determining how to split profits or how to proceed as my dad now thinks he owns the property and want to just give me a portion of the profit. Any suggestions please? Thank you in advance.

tom9980

Who is named on the deeds?

Who is named on the mortgage?

How much money did you put in as a deposit? You don't seem to mention any of your own money.

Bluebirdman_of_Alcathays

Unless I'm missing something:

Dad paid deposit
Tenant paid mortgage
Dad covered void when tenant absconded

Why on earth do you think you're owed anything?! Also were you telling HMRC about your business? Only the interest component of the mortgage is tax deductible, so your taxable profit is more than you otherwise think.

kitkat76

tom9980 wrote: »

Who is named on the deeds?

Who is named on the mortgage?

How much money did you put in as a deposit? You don't seem to mention any of your own money.

Im named on the deeds and I applied for the mortgage.
I didnt put any deposit coz it was agreed that I will pay for the mortgage.

kitkat76

Bluebirdman_of_Alcathays wrote: »

Unless I'm missing something:

Dad paid deposit
Tenant paid mortgage
Dad covered void when tenant absconded

Why on earth do you think you're owed anything?! Also were you telling HMRC about your business? Only the interest component of the mortgage is tax deductible, so your taxable profit is more than you otherwise think.

Thanks for help. Im here coz needed guidance.

tom9980

Well if he doesn't own the property and was not on the mortgage or deeds he technically gets the money he put in back and no more, I don't however think that is the moral answer.

I would give him all the money he gave back and 50% of the remaining profit, this assumes all costs and taxes like capital gains have been paid.

AnotherJoe

Well first of all forget the £129k as you owe a part of that in capital gains tax. You'll have to work that out but it could be perhaps be around £35k eg the profit on the house is well under £100k now.

Then your dad put in £45k. But the house rose in value by about 50% so you could argue so should his 45k. So now we are up to you owing your dad about £67k.

But either of you could argue it numerous other ways. And since you have the money ultimately it comes down to what both of you think is fair and are prepared to go to court over. It was astoundingly careless to loan so much money with no definition whatsoever of how the proceeds would be split.

You need an accountant to sort out your tax including CGT which you seem to have forgotten so, I'm guessing you have done the rest of your tax that in a similar way and probably not declared anything ? So that has consequences also in terms of costs.

kazwookie

How much does your dad think he wants?

How much do you want?

From what I can tell your dad put in £30k, £10k, £5k, and took out nothing

From what I can tell you put in nothing, but you took out £3840 (£80 x 12 x 4)

Where currently is the money from the sale?

jimbog

Bluebirdman_of_Alcathays wrote: »

Unless I'm missing something:

Dad paid deposit
Tenant paid mortgage
Dad covered void when tenant absconded

Why on earth do you think you're owed anything?! Also were you telling HMRC about your business? Only the interest component of the mortgage is tax deductible, so your taxable profit is more than you otherwise think.

Tenant wouldn't be entitled to any share of the profit

I would say that dad owns 40/186 of the 129 = £28k plus the same fraction of the rent profit over the 4 years i.e (40/186)*80*12*4 = £825 giving say £29k. Add to that the £5k you owe him means giving him £34k

The fact is that despite him paying 40k in hard cash you got the mortgage company to pay 'your' larger share ( and with the associared risk)

I'm not sure of the CGT element

kitkat76

Thanks all for the reply.

We have accounted for the CGT and already talked to the accountant regarding that.

I have already paid him the 45k but not the rest as we are trying to figure out the fairest way of doing it. He mentioned when we bought the property that he is happy with 18% from the profit. But since he has been ill, he is denying it hence we are in this dilemma. i know the problem is because there are no formal arrangements and everything is by trust, being we are family. I just wanted to get this resolved in a way fair to both.

kitkat76

kazwookie wrote: »

How much does your dad think he wants?

How much do you want?

From what I can tell your dad put in £30k, £10k, £5k, and took out nothing

From what I can tell you put in nothing, but you took out £3840 (£80 x 12 x 4)

Where currently is the money from the sale?

The money is in my bank. I have already given him back the 45k.
Yes I took the £3840 which was agreed by my dad to give it to me to help with my son. Again another complication to the issue as we didnt have any formal agreement about it.

He initially said that he will only want 18% of the profit but since being ill he wants all of it.

I would have thought that whatever is the sale proceeds after accounting for all expenses, that will be the profit. and 18% of that will go to him plus the 45k?