Best/cheapest way of partial transfer of ownership of a house

ernie-money

Hi,
I’m sure I haven’t used the correct term, but I’ll explain what I mean instead!
My sons dad and his brother own a house (tenants in common), which they let for a small rental income. The one brother now wants to take early retirement & the rental income is not enough to see him through until he can start claiming his pension, so he’s been talking about selling the house. The other brother wants to keep the house for the long term income instead, and we have therefore discussed me buying a small share of the house (12.5%) so that he can get a lump sum & the house stays with them.
I’m wondering if it’s possible to just get a solicitor to note the transfer on the deeds, or if it gets complicated, as we will all own different shares of the house?
Any advice & anything else we should think of would be gratefully received!

xylophone

Is there a mortgage on the property?

00ec25

has the brother wanting to sell allowed for the fact he will need to pay capital gains Tax on the difference between its original purchase price and what it is currently worth on the open market since the 2 owners are related to each other so in tax terms "connected persons"

when you say

the house stays with them

do you mean you will become the third owner and both brothers will retain part ownership?
what are the current ownership shares? 50/50?
will it become 50%, 37.5% & 12.5% ?

would 12.5% of the property be worth more than £40,000? If yes, then you will have to pay higher rate SDLT on that purchase price since I assume you already own a property yourself?

ernie-money

Thanks a lot for replying. There is no mortgage on the property, as they inherited it from their mother. The property is worth probably 160k in total, but it hasn’t been valued recently. There has been a subsidence claim on the property in the past, meaning that it would be difficult to obtain a mortgage on it, and as a cash buyer would likely offer below the asking price, we have agreed on a payment of 14k for the 12.5% share. This would make the ownership 50%, 37.5% & 12%.

ernie-money

Oh and - yes I do own a (mortgaged) property already.

00ec25

ernie-money wrote: »

Thanks a lot for replying. There is no mortgage on the property, as they inherited it from their mother. The property is worth probably 160k in total, but it hasn’t been valued recently. There has been a subsidence claim on the property in the past, meaning that it would be difficult to obtain a mortgage on it, and as a cash buyer would likely offer below the asking price, we have agreed on a payment of 14k for the 12.5% share. This would make the ownership 50%, 37.5% & 12%.

then i suggest "you" get a professional valuer to come up with a figure which they are willing to appear in front of an HMRC valuation tribunal and defend.
The premise being they arrived at their figure based on the fact the property has "problems" which a desktop valuation as undertaken by the Valuation Office Agency on behalf of HMRC will probably not spot. Hence the need for a credible professional (semi-independent) witness acting on your behalf

from what you say it would appear you (personally) will evade SDLT as 12.5% is <£40k

AnotherJoe

It's considerrably less than £40k. The property would need to be 2x it's current estimated value so an EA valuation ought to be good enough.

ernie-money

Thanks again!
So do all transfers/sales have to be done at market value? For us it’s the solution that works for all of us, as it’s all the money I can raise, and enough for his needs at the moment. It allows him to keep the rest of the property, which will one day be inherited by my son. He suggested a quarter of his share, as it hardly seems worth doing it all for less, but are you saying that if the house is valued higher, then he isn’t allowed to sell/gift or other way transfer that percentage of ownership to me?

00ec25

AnotherJoe wrote: »

It's considerrably less than £40k. The property would need to be 2x it's current estimated value so an EA valuation ought to be good enough.

not for CGT purposes it isn't, as the connected persons position is why a professional value would be advisable

00ec25

ernie-money wrote: »

but are you saying that if the house is valued higher, then he isn’t allowed to sell/gift or other way transfer that percentage of ownership to me?

not at all. He can gift you whatever he likes.
however if he sells it to you, you would face SDLT implications if your share is >£40,000

not exactly a deal stopper, just be aware it might cost you 3% of the price paid in tax if / when your share >£40k if you pay real money for it (there is no tax on a gift in other words)

ernie-money

00ec25 wrote: »

not at all. He can gift you whatever he likes.
however if he sells it to you, you would face SDLT implications if your share is >£40,000

not exactly a deal stopper, just be aware it might cost you 3% of the price paid in tax if / when your share >£40k if you pay real money for it (there is no tax on a gift in other words)

That’s great, thank you so much for clarifying! I am certain that there’s no way that it would be valued more than 40k (as a percentage) so no risk of having to pay the tax. But if it means having to pay for a professional valuation to prove it, I’m wondering whether it would be simpler if I just gift him the money & he gifts me the share of the house? Would either way have implications for a hypothetical future scenario, whereby in a few years time, I might be able to buy him out of another 10%..?
Thank you so much for taking the time to give advice!