Buy out of sibling's share of property - is this fair?

redjuice55

Hello, I am seeking advice here...

My sibling and I purchased a property (50/50 split) many moons ago, it was initially rented out, but I moved in some years later.

I want to buy them out of their share as I'm due to get married, they are willing to sell however there is still a mortgage on the property.

To calculate the money I am to pay them for their half, I've used property value minus outstanding mortgage, then divide by 2 to obtain share of equity. Whilst I appreciate this is not half the valuation of the property, my sibling believes they should not have half of their share of the mortgage deducted. I don't think that's fair as its the equity in the property that should be shared.

Furthermore, I will need to remortgage to afford this, and I can't see how it makes any sense for me to pay off the current mortgage with the newly borrowed money plus give an additional payment to my sibling which is equivalent to half of the mortgage, which they are liable for too.

Add to that, they also want me to pay some/half of their CGT (which is calculated against the valuation which is higher than equity, I understand why they may want to do this). But frankly, I don't agree with their position, its their gain so I should not contribute towards it. And I have my own liabilities to CGT too if I ever sell the property due to initially renting the property (appreciate it will be a diminishing amount the longer I live there). If I do move in the future I'd also be liable for stamp duty, so I'll still have my own costs.

I really want this resolved before I get married. Am I actually being unreasonable, I feel like I've worked this all out fairly, but seems like its my sibling being unfair?

km1500

the property equity is the open market value less the remaining mortgage less any sales costs

your sibling's share would be half of this

your cgt liability would be zero as it is your main residence and thus your share is cgt-free

their cgt liability would be half of the gain less allowances (this may seem unfair but in fact I assume your sibling lives somewhere and if that somewhere is owned they they will get their own main residence relief)

TheJP

redjuice55 said:

Hello, I am seeking advice here...

My sibling and I purchased a property (50/50 split) many moons ago, it was initially rented out, but I moved in some years later.

I want to buy them out of their share as I'm due to get married, they are willing to sell however there is still a mortgage on the property.

To calculate the money I am to pay them for their half, I've used property value minus outstanding mortgage, then divide by 2 to obtain share of equity. Whilst I appreciate this is not half the valuation of the property, my sibling believes they should not have half of their share of the mortgage deducted. I don't think that's fair as its the equity in the property that should be shared.

Furthermore, I will need to remortgage to afford this, and I can't see how it makes any sense for me to pay off the current mortgage with the newly borrowed money plus give an additional payment to my sibling which is equivalent to half of the mortgage, which they are liable for too.

Add to that, they also want me to pay some/half of their CGT (which is calculated against the valuation which is higher than equity, I understand why they may want to do this). But frankly, I don't agree with their position, its their gain so I should not contribute towards it. And I have my own liabilities to CGT too if I ever sell the property due to initially renting the property (appreciate it will be a diminishing amount the longer I live there). If I do move in the future I'd also be liable for stamp duty, so I'll still have my own costs.

I really want this resolved before I get married. Am I actually being unreasonable, I feel like I've worked this all out fairly, but seems like its my sibling being unfair?

When you moved in did you pay the mortgage or did you both pay? Did you pay rent to your sibling for living in the property?

sheramber

If it is a joint mortgage you will not be able to carry it on.

You will need a new mortgage in your own name /joint with wife.

sheramber

km1500 said:

the property equity is the open market value less the remaining mortgage less any sales costs

your sibling's share would be half of this

your cgt liability would be zero as it is your main residence and thus your share is cgt-free

their cgt liability would be half of the gain less allowances (this may seem unfair but in fact I assume your sibling lives somewhere and if that somewhere is owned they they will get their own main residence relief)

The house was let before it became his  main residence.

propertyrental

My sibling and I purchased a property (50/50 split) many moons ago, it was initially rented out

where did the rental income go? Presumably 50% to each of you?

, but I moved in some years later.

Did you continue to pay sibling his 50% rental income (since you were renting 'his' half of the property)
I want to buy them out of their share as I'm due to get married, they are willing to sell however there is still a mortgage on the property.

What is the property's market value?

What is the outstanding mortgage?

Who paid the mortgage while the priperty was rented out?

Who paid the mortgage after you moved in?

To calculate the money I am to pay them for their half, I've used property value minus outstanding mortgage, then divide by 2 to obtain share of equity. Whilst I appreciate this is not half the valuation of the property, my sibling believes they should not have half of their share of the mortgage deducted. I don't think that's fair as its the equity in the property that should be shared.

Correct
Furthermore, I will need to remortgage to afford this, and I can't see how it makes any sense for me to pay off the current mortgage with the newly borrowed money plus give an additional payment to my sibling which is equivalent to half of the mortgage, which they are liable for too.

you will need a new mortgage in your name. The existing mortgage will need paying off by you and sibling (50% each)

Add to that, they also want me to pay some/half of their CGT (which is calculated against the valuation which is higher than equity, I understand why they may want to do this). But frankly, I don't agree with their position, its their gain so I should not contribute towards it. 

You are each responsible for your individual tax liabilities.

In your case the calculation depends on the value when purchased and the value when it became your main residence (giving you entitlement to Private Residence Relief), less your annual allowance and any other allowances.

I beleive this liabilty is immediate (and must be paid withing [30?] days of the sale (from you/sibling to you/new partner)

In his case it is the value when purchased and the (market) value when sold (to you).

And I have my own liabilities to CGT too if I ever sell the property 

I may ben wrong but I believe the sale to you/new partner triggers your CGT liability

due to initially renting the property (appreciate it will be a diminishing amount the longer I live there). If I do move in the future I'd also be liable for stamp duty, so I'll still have my own costs.

Again I beleive SDLT (if England) will be due when you buy out your sibling - someone else may confirm

I really want this resolved before I get married. Am I actually being unreasonable, I feel like I've worked this all out fairly, but seems like its my sibling being unfair?

Jonboy_1984

Has your sibling actually realised that with their calculation, they would then have to pass over their 50% share of the outstanding mortgage to the bank to discharge it and let the transaction go through, in the same way as if it was sold on the open market???

(sounds like one of mine, who often doesn’t think through the next steps in life!)

Bigphil1474

I think the key is what happened when it was rented - rent shared 50/50?, and when you moved in did you pay the equivalent rent to your sibling (50%). If you did, then you share the equity not the value of the property. If you didn't pay rent, then add that on to your siblings half. That would be fair imo.

BoGoF

There's a difference between what 'should' happen which is as above and what you have to do in this scenario. Your sibling kind of holds all the cards here and ultimately doesn't have to sell his/her half share. A bit of negotiation may be required and you may need to 'suck it up' in terms of some of their demands if you really want to proceed.

ArbitraryRandom

BoGoF said:

There's a difference between what 'should' happen which is as above and what you have to do in this scenario. Your sibling kind of holds all the cards here and ultimately doesn't have to sell his/her half share. A bit of negotiation may be required and you may need to 'suck it up' in terms of some of their demands if you really want to proceed.

At the same time, the OP doesn't actually have to buy their sibling out and can go on living their with their partner... 

InMyDreams

Only giving him half of the equity (less agreed costs) makes sense if you are also paying off his half of the mortgage for him. This works out the same as giving him half the market value and him using those funds to pay off his 50% of the mortgage.

Are you saying he wants half the market value and in addition wants you to pay off his half of the mortgage on top? That doesn’t seem fair on the surface but what is muddying the water is what the arrangement was when you moved in. What are the figures involved?