Advice required re inherited property and buying out sister

voucherqueen42

Any advice on this would be extremely welcome as I’m a bit clueless!

Myself and my sister inherited our father’s property last April.  It is being rented out - it had been rented out for 2 years before our fathers death to help fund his care home fees.

I will be transferring my 50% share to my sons who are in their mid 20s and still live at home.  

My sister owns outright the property she lives in and another property which she rents out. She has no children.

The plan is to offer to buy her out which I can’t see her having a problem with, let our sons move in rent free so they can continue to save for a property whilst having the shared house experience.  They both have homebuying ISAs due to mature n 2 1/2 years and will have until 2030 to use the funds to buy properties.

Will this plan trigger any tax implications?  The house is worth £250k at present and is still n my father’s name at the land registry - not sure if this makes any difference to anything and if we need to get it sorted? I dealt with the probate online and this never came up.

I know about CGT when it is sold but would my sister be liable to pay stamp duty as she would be disposing of her half share?  

Presumably we could deal with this informally and don’t need to consult a solicitor?
Thanks in advance.

AdrianC

Is the property currently owned 50/50 you:sister, or is it still owned by your father's estate?

You're going to give your half to your sons, then buy your sister's half - and keep it?
Might it make more sense for you to gift your sons the money, they each buy half of her half, and you simply keep your half?

p00hsticks

A few thoughts:

It's the buyer who pays SDLT, not the seller, so if Anyone has to pay it would be you.

Have you talked through your plan  thoroughly with your sons and are they fully aware of the consequences ?

If you put the property in their names they'll no longer be first time buyers when they come to buy their first 'real' property, which could see them missing out on any incentives going at the time (such as no stamp duty / Help to Buy Loans etc). 

And what happens if one is ready to move out to buy their own place and the other isn't ?  That would see them not only as no longer first time buyers, but also as buying a second home. which would see them paying more SDLT on their new purchase unless the rules change.

voucherqueen42

POosticks - this is why we want them to live in the property rent free and save, rather than buy it.  We want them to be FTB when they buy their own properties in future.  What’s to stop us leaving the property exactly as it is n my fathers name .?

voucherqueen42

If we did this informally and transferred the money to my sister over a period of say a year, who would know and how would stamp duty tax be paid?

AdrianC

voucherqueen42 said:

What’s to stop us leaving the property exactly as it is n my fathers name .?

Apart from the minor detail of him being dead...?

As the executors of his estate, you have a legal responsibility to wrap his estate up in a timely manner. You're already closing on a year.

So... if your sister doesn't actually own half yet, then you would be paying into the estate, not buying off her. You aren't buying the property, you're simply receiving the entirety as your bequest. But because the estate can't afford to do that, you then make it good for your sister's bequest. No SDLT.

But the point about your sons and their FTB/SDLT situation is a good one. 25% of £250k is above the £40k disregard limit for additional property SDLT. They would currently have to pay +3% on their later home purchases, as additional properties, if this one is not sold at the point they buy - as well as losing their FTB SDLT discount etc.

steampowered

voucherqueen42 said:

I will be transferring my 50% share to my sons who are in their mid 20s and still live at home.  

Don't do this, you think you are doing a nice thing, but it's a bad idea.

1) Your sons will lose their first time buyer status. Therefore, your sons will no longer qualify for first time buyer stamp duty relief when they buy their first property. 

2) As your sons will no longer be first time buyers, they will not be able to claim the government bonus on their help to buy ISAs.

3) What happens if one of the sons wants to move out, but the other doesn't? The son who is moving out will be hit by higher rate stamp duty (3% surcharge) when he buys his own property, as he would then own an interest in two properties.
 
4) Have you discussed this with your sons? Do they actually want to live together, and do they actually want to live in this particular property? 

I suspect your sons will be much better off if you sell the house and gift them the proceeds to fund a deposit for a house of their own.

They will then still qualify as first time buyers, qualify for first time buyer stamp duty relief, qualify for the government bonus on their help to buy ISAs, won't have to worry about higher rate stamp duty, and can pick a house which suits them.

voucherqueen42

I dealt with probate and the will so I automatically assumed the property was now ours 50/50. I did it online without consulting a solicitor as I was told it was straight forward.  I wasn’t prompted at any point during the process to get the name transferred. Am I being completely naive.?  Does this mean the property isn’t ours yet? We both had power of attorney too if that makes any difference?  

steampowered

voucherqueen42 said:

I dealt with probate and the will so I automatically assumed the property was now ours 50/50. I did it online without consulting a solicitor as I was told it was straight forward.  I wasn’t prompted at any point during the process to get the name transferred. Am I being completely naive.?  Does this mean the property isn’t ours yet? We both had power of attorney too if that makes any difference?  

You can find out who owns a property by downloading a copy of the title register from the Land Registry website: https://www.gov.uk/search-property-information-land-registry.

It is worth doing this. From what you have said it sounds like your father might still be registered as the legal owner of the property. If that is the case, you do need to get that corrected - legal title derives from the land register, so if you haven't sorted out the land register you don't own the property.

voucherqueen42

The plan is to keep the house for a few years so they can save like mad to buy their own properties over a period of a few years and rent out a couple of rooms to lodgers.  One or both of them would move in.  They are 23 and 26 and we are under the impression you shouldn’t go from living with your parents straight to buying your first home.  They are too young to buy for a few years yet and with interest rates practically at zero it would be madness to sell the house and bank our half share.

Presumably we could get it transferred into mine and my sisters name now without the above mentioned implications for my sons, ensuring they are FTB when the time comes?

diggingdude

Just sell it, you will likely lose just as much in fees etc if you hold onto it for a few years, and who will have all the hassle with non paying lodgers etc? 

This forum is full of threads from parents who thought (with all the best intentions) they were doing their kids a favour with an inherited property only to face problems.