Buying out or renting siblings inherited property

HorseWhisperer

Hello experts!

My 2 sisters and I have inherited our mum's house equally. We are trying to decide what to do with it and agreement is difficult.

I'd like to try and buy out my siblings and live in it myself but need a bit more info about the implications and legalities around that:

1. We've had a recent market valuation of £350-375K though probate value was £300k (back in May 2022). Is there any IHT issue if I were to buy out my siblings at the probate value rather than market value (such as benefit in kind)? Her total estate was valued at £451,756 (net) so it's near/pushing over the threshold.

2. If they refuse to sell to me, I may be able to persuade them to rent their portion to me so I can live it. How would that work legally? Would they be my landlord and as such need a tenancy agreement (plus abide by the higher level of requirements as the house is based in Wales). Would we assess the market rent then split that in three, with me paying them a third each or could we come to some lower rent agreement without there being a tax issue? Can I still be the legal owner of a property and pay rent to live there? If there are costs involved in bringing the property up to standard to meet Welsh landlord requirements, would it be their responsibility or all three of ours, even though I'm the tenant? 

Sorry for all the questions, but I'm trying to get my head around how this would work as it seems a slightly bizarre arrangement and I understand that there can be tax implications for these sorts of situations.

Thank you for your insight!

HorseWhisperer

I should probably have stated that the property has not yet been transferred to us siblings with the Land Registry while we are deciding whether to sell it or keep it. It's still in my mum's name, but this will be done as soon as a decision is made. This was the advice of the probate solicitor who said if we sell it we can do a transfer from my mum's name directly to a buyer. I am also the executor of her estate.

Hoenir

Any capital gain, i.e. the difference between the declared probate value and the eventual selling price, net of costs, is subject to capital gains tax. This is borne by the estate. 

As executor you have legal responsibilities in winding up the estate and dealing with your late mum's wishes. Whilst you are also a beneficiary not wise to use the granted powers to exert undue pressure or influence. 

Keep_pedalling

Was your mother a widow? If she was her estate is way below her exemptions so IHT will not be an issue. If she wasn’t then it might be as most properties value have fallen in value in the last year. 

The other tax issue is CGT which will be payable by your siblings on their gain. Who is administrating the estate?

Renting their share would  not be something I would contemplate just too many complications.

poppystar

If you buy them out at the probate value they will be losing out on the gain in value - would they really want to do this if you have been bequeathed equal shares?  You should be purchasing at the market value, which may mean a CGT liability rather than an IHT one. At this stage IHT liability would only potentially change if HMRC queried the probate valuation. 

The partial renting situation would be a minefield. What is the incentive for your siblings to do something that will be so complicated and tie up their inheritance? Even if you could sort out a way of renting that worked they will have no access to their money - again would they really want to do this? And expecting them to pay to bring the property up to standard is cutting their inheritance even more!

Maybe think about how you would feel if you were asked to lose out on the increase in value of the property and hence your or not see the money from your inheritance for years? 

km1500

if probate was 300k and you buy it for 350k then there is a 50k capital gain which would have to pay tax at 28% although you do have a small allowance to deduct from the 50k  - also selling costs. note: this is true even if you sell it to somebody else.

assuming the house is to be sold anyway I can't understand why your sibling would worry if you bought it or somebody else bought it as long as it was sold at market price?

gwynlas

Is there any reason your siblings would not sell to you eg they think that there might be an increase in value? I would not rent from them as it is fraught with difficulties with them becoming accidental landlords. 

MDMD

There’s a rule that transactions between connected persons are treated as occurring at market value irrespective of the agreement between the parties.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14560

Siblings are deemed to be connected persons and it means you will pay CGT on the £50k even if you don’t get the actual cash.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14580

Keep_pedalling

MDMD said:

There’s a rule that transactions between connected persons are treated as occurring at market value irrespective of the agreement between the parties.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14560

Siblings are deemed to be connected persons and it means you will pay CGT on the £50k even if you don’t get the actual cash.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14580

The OP is the buyer so won’t be paying CGT, they won’t be buying from the other beneficiaries  they will be buying from the estate and it is the estate that may owe CGT or even IHT if HMRC think the original valuation was under the real value at the time of death.

CGT could be reduced buy lowering the percentage of the shares that would go to the siblings and increasing the amount of other assets going to them. If they share the £154k in other assets between the two of them giving the op an additional share of the home their would be less to buy out, but the OP really needs help from a solicitor here.

HorseWhisperer

Thanks all for responding. Yes, the rental propect looks very complicated indeed, so scratch that.

To answer your questions:

No, my mother wasn't a widow but was estranged from her husband. Her will came with a letter on her solicitor's letterhead that says she does not want her husband to inherit anything. He's fine with that.

I am the executor and the only beneficiaries are myself and my siblings. All of the other assets have been distributed (save for a lump sum kept in the executor account for future costs/legal fees etc), so we can't

We have been over and over the various options of what to do with the house (sell / rent it out / holiday let) and we thought we were finally in agreement that we would sell. However, now one of my sister's husbands has suggested that he buys us out, no doubt to refurb and sell on at a profit (which I am not comfortable with). My mum (verbally) told us that she wanted us to keep it to use a family bolt hole, but this is not really an option as it needs about £40k worth of work and not everyone is in a position to contribute to that and the ongoing upkeep. It's quite an emotional thing for my sisters too and they have taken nearly 2 years to even come to the decision to sell it, so it's not plain sailing to navigate this decision.

I'm thinking that, if I buy them out and live in it, then they can use it as a holiday house by mutual consent, but I'm wondering if it would be difficult to get that mutual agreement as they would still see it as "theirs", even if they no longer owned it. It's a bit of a minefield!

Whatever happens, as the executor I shall be taking legal and tax advice before agreeing to any sale.

Thanks again for your thoughts.

Savvy_Sue

I feel that if there is another interested party within the family, its essential that you get the best price for it, ie put it on the market. For you, so that you're not guilty of self-dealing, and for the brother-in-law so that he's not getting it at a bargain price.

Either of you can of course make an offer, but it would have to be a good one.

Hard though it is, you all have to accept that it's no longer the family home. To me, it's the people who make it, and even if you buy it, it will then be YOUR home.