Buying Out Siblings in an Inherited House Purchase - Loan To Value and Taxation

AntPDC

My two siblings and myself have inherited an equal share of my late Mother's property. The property is free of mortgage and charges. Grant of Probate is expected within a few weeks (my brother is the Executor). We have obtained three valuations as part of the probate process, and agreed on the average figure of £155k. My siblings have agreed to my buying out their shares, at £103,333,33 total, using this figure as the "sale price" for simplicity in the purchase process. I plan to use a combination of a mortgage and my own savings to pay this sum. My own share of £51.6k resides in the property itself (of course). The sum of all three shares amounts to the real sale price of £155k. I plan to live in this property as my principal residence. 

My questions are these:

•  will this method raise the LTV for mortgage purposes, such that I'd potentially have to choose a more expensive mortgage product?
• is there any tax issue here, in that the buying method we are using (merely for expedience) might be construed as selling below the open market value?
• are we doing this all wrong?

Grateful for advice please. I'm finding it impossible currently to speak to anyone at HSBC!
Ant

Nearlyold

Could you first explain what you mean by the bit in bold "My siblings have agreed to my buying out their shares, at £103,333,33 total, using this figure as the "sale price" for simplicity in the purchase process."
In what way does that simplify matters and for what perceived purpose?

Mickey666

Does there even have to be a formal sale process?  if the beneficiaries are all in agreement then the house could be assented to you in it's entirety.  You could then simply give your two siblings the agreed amount of money.  Obviously there's a timing issue because they wouldn't (or shouldn't) agree to the assent until they've been paid so it would have to wait until you've got your mortgage in place.

Assuming the house forms the bulk of the estate value it seems as if there is no IHT liability, so the agreed 'notional' value of the house should not be an issue, as long as the mortgage company is happy to lend against it.

As for your questions:

1) For mortgage purposes the house is valued at £155k and you're not really 'selling' it below that value because you're giving your siblings their share of its £155k value.  So I think you can forget any talk about selling below market value and the LTV will be based on the market value of £155k.

2) not applicable, because you're not 'selling below market value'

3) Not sure about the assent and gifting thing.  it can certainly be done but not sure of it might be construed as trying to avoid SDLT by avoiding a formal sale - assuming anyone ever found out.

Only other issue I can imagine is the mortgage lender's valuation.  You say you've had three valuations and £155k was the average, but what was the spread of values?  Are they wide enough that the lender might decide the market value is actually the lowest value and therefore only lend against that?  it need not be a problem if it still gives you enough to pay your siblings, and they shouldn't really care how much the house is valued at as long as they get their agreed £51.6k each.  But just wary of the mortgage valuation tunring out to be more than £155k and the siblings suddenly wanting more!

AntPDC

Nearlyold said:

Could you first explain what you mean by the bit in bold "My siblings have agreed to my buying out their shares, at £103,333,33 total, using this figure as the "sale price" for simplicity in the purchase process."
In what way does that simplify matters and for what perceived purpose?

If we were not to do that, I'd had to find the entire £155k to buy the property from the Estate outright, and then wait for the Estate to divvy-up the proceeds to the three Beneficiaries. I do not have that kind of liquidity.

AntPDC

Mickey666 said:

[Selective quote]

As for your questions:

1) For mortgage purposes the house is valued at £155k and you're not really 'selling' it below that value because you're giving your siblings their share of its £155k value.  So I think you can forget any talk about selling below market value and the LTV will be based on the market value of £155k.

Great Post Mickey, thank you. Very quickly, I see references all the time to LTV being based on either the market value, or the sale price, whichever is the lesser. That worries me in this context.
Allow me to consider your other helpful comments in more depth when I get my head around them. BTW, we siblings are close, trusting folk! Thanks again!

getmore4less

AntPDC said:

Nearlyold said:

Could you first explain what you mean by the bit in bold "My siblings have agreed to my buying out their shares, at £103,333,33 total, using this figure as the "sale price" for simplicity in the purchase process."
In what way does that simplify matters and for what perceived purpose?

If we were not to do that, I'd had to find the entire £155k to buy the property from the Estate outright, and then wait for the Estate to divvy-up the proceeds to the three Beneficiaries. I do not have that kind of liquidity.

You buy the house off the estate with 1/3 as your initial deposit(no cash required as you would get that back) .
 
Add whatever you want in cash, rest as a mortgage.

Don't try to over complicate  keep it as close to a regular purchase off the estate as possible and regular mortgage application with big deposit.

You need a mortgage so there will be solicitors involved.

as long as it is not a second home no SDLT.

Cscott139

As far as I can see you wont be buying the property from your siblings as you already own it (part of). You will be remortgaging the property and releasing enough equity to give your 2 sibling their share of the value and at the same timer they will relinquish their ownership of the house. There would be no stamp duty as you aren't buying it.

Mickey666

Not strictly true.  The ESTATE owns the house, not the beneficiaries (yet).  The estate can dispose of the house in two ways - sell it on the open market (in this case to the OP) and then fulfill the will by distributing the monies, or assent it directly (in this case to the OP) on consideration of the siblings receiving the agreed amounts (in this case from the OP).  In either case, the siblings never become legal owners of the house.

It might sound pedantic but it's an important distinction.  A beneficiary and an executor are two very different 'entities' with very different responsibilities, even though they may be same physical person, or persons in this case.

AntPDC

Wouldn't that be a "transfer" rather than an "assent"? I thought assents couldn't involve money, because a gift that costs money isn't a gift. 

For the benefit  of others in my position (or not - who knows?) "This situation may occur where there are several beneficiaries and one wants the whole of the property. If so, the beneficiaries may come to an agreement where one pays the others for their shares based on the value of the property so that they can become the sole owner. In these cases a Transfer would occur so that the money paid can be accounted for in the document, in the Estate accounts and also at the Land Registry, as there may be tax implications". That was on the Coop's site.

Mickey666

Not sure of the legalities.  I do know of someone in a similar situation, though only one sibling, and they ended up assenting the property to one of the beneficiaries and the one keeping the property paid their sibling agreed amount separately.  Is that not allowed?

I guess the two siblings (the only beneficiaries) agreed a variation of the will (informally perhaps?) and technically the money handed over from one sibling to the other would have been a PET/gift.  I don't recall them saying there were any problems, although it was about 15 years ago so perhaps rules have changed since then?

getmore4less

There are loads of ways to do it.

If you need a mortgage, that drives the best way to do it.