One beneficiary buying out another's share of an inherited property - tax and other implications

badger09

@naedanger

What are you, or the beneficiaries trying to achieve by your proposals?
I agree with others, don't mess around with the property valuation!

naedanger

Two different things.
The first and least significant thing is to avoid paying the cost of a property valuation if it isn't necessary. The estate is well below the threshold for paying IHT and the house is very similar to others that have sold nearby; it is around 25 years old and on a fairly modern estate. Therefore if nothing else was going on I think I could value it myself by comparing it to nearby properties that have sold recently and I would err on the high side, as I believe HMRC would be more concerned about under, rather than over, valuation. (That might be mistaken and so, as I said, I might just get a professional valuation.)

The second thing is that beneficiary 1 would like to move into the house (and own it outright) but could not sensibly afford to buy out beneficiary 2's interest. (Beneficiary 1's existing house is worth significantly less than the house in the estate.) Beneficiary 2 is happy to help beneficiary 1 financially and is proposing to sell their 50% share of the house in the estate for 50% of beneficiary 1's existing house, which they will sell and which they currently own outright. The question is how best to do this. (Beneficiary 2 is not trying to achieving anything else like creating a capital loss.)

The proposal is that after confirmation (Scottish equivalent of probate) has been received beneficiary 1 would put their existing house on the market. When it has sold then the house in the estate would be transferred to the two beneficiaries and then beneficiary 2 would sell their share in return for half of the net proceeds from the sale of beneficiary 1's house. (Beneficiary 1's existing house should be quite quick to sell.)

The two beneficiaries trust each other and the executor totally. So there is no concern about one party reneging on the deal or swindling the other. The concern is not to fall into some tax or other pitfall. (Recognising that beneficary 2 is giving beneficiary 1 a financial gift is not seen as a pitfall. However I can see this gift could be avoided with a deed of variation but I doubt beneficiary 2 would be sufficiently concerned about the potential impact on their future estate to be willing to pay for a deed. But it is something to think about.)

There would be a solicitor involved in both obtaining the confirmation and handling the property dealings. However I want to be informed myself in any discussions. 

Keep_pedalling

What is the approx value of the house and the value of  rest of the estate?

naedanger

Keep_pedalling said:

What is the approx value of the house and the value of  rest of the estate?

The house in the estate is around £200k. (Beneficiary 1's house maybe £100k - £120k.)
Rest of estate around £210k. (Beneficiaries are testator's children.)

Keep_pedalling

naedanger said:

Keep_pedalling said:

What is the approx value of the house and the value of  rest of the estate?

The house in the estate is around £200k. (Beneficiary 1's house maybe £100k - £120k.)
Rest of estate around £210k. (Beneficiaries are testator's children.)

So there is no need to for one beneficiary to buy the other one out. If the will simply splits the estate 50/50 then one gets the house plus £5000 from the rest of the estate and the other gets the remaining £205.

if the will specifically leaves the house 50/50 then a deed of variation achieves the same thing.

getmore4less

Looks pretty straight forward

P2 sells their share for whatever they want and gifts the rest  becomes a PET

No mortgage makes it easy, could invole a solicitor for the Deed of transfer..

Swapping cash in the estate for a share of the house should not need a DOV(they have issues as they can't involve consideration like swap a house for cash)).

if P2 is likley to have a IHT able estate in the next 7 years before the gift drops out might need some planning but if they have a spouse exemtion they just lose some transferable NRB,  house & kids, they have £1/2m to work with.

naedanger

Keep_pedalling said:

naedanger said:

Keep_pedalling said:

What is the approx value of the house and the value of  rest of the estate?

The house in the estate is around £200k. (Beneficiary 1's house maybe £100k - £120k.)
Rest of estate around £210k. (Beneficiaries are testator's children.)

So there is no need to for one beneficiary to buy the other one out. If the will simply splits the estate 50/50 then one gets the house plus £5000 from the rest of the estate and the other gets the remaining £205.

if the will specifically leaves the house 50/50 then a deed of variation achieves the same thing.

What they are trying to achieve is beneficiary one gets half of the rest of the estate i.e. £105k plus the house plus half their own existing house - so £105k +£200k house plus £55k from the sale of their own house (assuming it sells for £110k net).
Beneficiary 2 gets £105k + £55k for sale of beneficiary 1's house.

(So if the house is worth £200k then beneficiary 2 has gifted £45k.)

theoretica

naedanger said:

Keep_pedalling said:

naedanger said:

Keep_pedalling said:

What is the approx value of the house and the value of  rest of the estate?

The house in the estate is around £200k. (Beneficiary 1's house maybe £100k - £120k.)
Rest of estate around £210k. (Beneficiaries are testator's children.)

So there is no need to for one beneficiary to buy the other one out. If the will simply splits the estate 50/50 then one gets the house plus £5000 from the rest of the estate and the other gets the remaining £205.

if the will specifically leaves the house 50/50 then a deed of variation achieves the same thing.

What they are trying to achieve is beneficiary one gets half of the rest of the estate i.e. £105k plus the house plus half their own existing house - so £105k +£200k house plus £55k from the sale of their own house (assuming it sells for £110k net).
Beneficiary 2 gets £105k + £55k for sale of beneficiary 1's house.

(So if the house is worth £200k then beneficiary 2 has gifted £45k.)

Still easy enough with a deed of variation - beneficiary 2 gets £160k cash from the estate, beneficiary 1 gets the house and £50k from the estate and keeps all of their house sale.  A deed of variation will probably be less paperwork than selling half a house and can vary away from being 50:50.  If beneficiary 1's house sells for more/less than expected they can sort it out between them.

getmore4less

Better that P2 gets the money from the estate rather than wait for the sale of P1s house. 

theoretica

Keep_pedalling said:

naedanger said:

Keep_pedalling said:

What is the approx value of the house and the value of  rest of the estate?

The house in the estate is around £200k. (Beneficiary 1's house maybe £100k - £120k.)
Rest of estate around £210k. (Beneficiaries are testator's children.)

So there is no need to for one beneficiary to buy the other one out. If the will simply splits the estate 50/50 then one gets the house plus £5000 from the rest of the estate and the other gets the remaining £205.

On reflection this seems simplest and to involve the least paperwork.  The one who got the cash can give their sibling a present afterwards without going through the estate at all.