Varying share of joint ownership.

PeeDeeH

My bother and I are looking at a buy to let at about £100K. At present the split in equity would be 25/75 and a deed of trust can be created for this. In a couple of years time he will be in a position to buy out 1/3 of my share, giving equal shares.


Can this be done and how?


Does the transfer have to be at market rates or can we just use our purchase share? Would the tax man see this as a gift?


What are the CGT implications for me?


In about 5 years time we will be in a position to buy a 2nd buy to let, again with unequal split.



Anything else?

Tom99

You would normally have a deed of trust which will set out how the net proceeds on sale are to be split. Is there a mortgage?
Unless you were paying 75% of the deposit and 75% of the mortgage repayments then it would not normally be a straight 75/25 ownership but a two part formula.
When the time comes to sell him some of your ownership it will be a part disposal for CGT purposes from your point of view. Since you are connected parties the CGT disposal price will be open market value, what he actually pays you does not come into it for CGT. He will be treated as having paid you open market value even if he did not.

You would then revise your deed of trust to reflect the new ownership division.

da_rule

PeeDeeH wrote: »

Does the transfer have to be at market rates or can we just use our purchase share? Would the tax man see this as a gift?

Not sure what this means.

However, you can vary the deed or trust of simply extinguish the deed and create a new one.

You will have potential CGT liability based on how much you paid for the share you are selling vs the amount you then receive from your brother (or the open market value of the share he purchased if done for undervalue).

If you are buying with a mortgage then the mortgage company may need to approve any change in beneficial ownership levels.

You won’t need to do anything at the Land Registry as the legal ownership will not be changing, merely the beneficial ownership.

There may also be stamp duty implications for your brother (at the higher rate), based on the value of the new share.

A simpler option may be to leave the split on this property as it is and, in 5 years when you buy the next one, he can put more in.

Or, you could set up a limited company. You have 75% of the shares, he has 25% and he could by shares from you as and when you want until it becomes a 50/50 split. You would still potentially have CGT liability, but you could get around this by ensuring that you only sell shares worth less than your annual CGT allowance (currently £12,000) in any financial year.

Your brother may have to pay stamp duty on the share purchase but the rate is much lower (0.5%) than property stamp duty.

Also, a limited company removes your personal liability to tenants etc as the company will be liable. It will also mean that any profit can be taken as dividens which is usually taxed at a lower rate than income. If you are looking for mortgage funding though a limited company may make this harder and one/both of you may have to stand as guarantor.

As a limited company you would automatically have to pay the higher rate of stamp duty, but that would probably be the case anyway (assuming at least one of you already owns a home) so isn’t any additional cost. You will however have to keep more detailed financial records.