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

SDLT_Geek

_Penny_Dreadful said:

Bluebell1000 said:

redjuice55 said:

Thank you everyone for your comments thus far and for your patience.

When property was rented, the rent went directly into a joint account to pay mortgage, and build up some cash for additional costs and also make overpayments where possible. I have not been paying rent to my sibling, however we have both been paying the mortgage since I moved in. I guess this is a loss to my sibling in theory.

I have been paying the bills (gas, elec, water, council tax etc), home insurance, and general maintenance costs, and where I wanted to modernise parts of the house e.g. bathroom fittings, tiles, fitted wardrobes or buy my own white/electrical goods I have not asked for a contribution.

Property was bought at 385k originally, and valued by estate agents at around 700k, we have 110k left on the mortgage. The plan is to remortgage with my partner after we are married (we will settle the outstanding mortgage with the new lender), and this will be our home for good. Hence why I also want to remove the complexity of half being owned by my sibling.

My sibling's CGT after appropriate deductions is around 24k, whilst mine is 7k.

I'm seeing the buyout like others have said as if it was a sale to a third party, the seller still needs to settle the remaining mortgage with the lender, and you wouldn't make the buyer pay your CGT on top.

I'm not a tax expert but I thought you don't pay any CGT if you are living there? 

You only get Principle Residence Relief for the time the property was your only or main home plus the final 9 months of ownership. A CGT liability is triggered when you dispose of the asset and as the OP isn’t disposing of the asset I don’t know why they think they’re facing a £7k CGT bill. SDLT will be payable though. 

Here is a thought on SDLT.  OP has said the property is now worth around £700K.  So let us work with a figure of chargeable consideration of half of that, £350K, made up of the payment of equity and settling the mortgage.

Depending on OP's circumstances (and of OP's spouse if they are married then) the standard rates or the higher rates might apply.  Assuming the standard rates, then the SDLT on £350,000 would at present be £5,000.

I agree with @penny_dreadful that I would not expect OP to have to pay CGT on OP's retained share in the property.

sheramber

CGT needs to be calculated for the period it was rented out and was not the OP’s  main residence. 

Whether any tax is due will depend on the calculation 

You cannot cancel potential  CGT liability by moving into your rental property. 

The sibling’s CGT will be calculated for the whole period of ownership as he never lived in it.

pinkshoes

redjuice55 said:

Thank you everyone for your comments thus far and for your patience.

When property was rented, the rent went directly into a joint account to pay mortgage, and build up some cash for additional costs and also make overpayments where possible. I have not been paying rent to my sibling, however we have both been paying the mortgage since I moved in. I guess this is a loss to my sibling in theory.

I have been paying the bills (gas, elec, water, council tax etc), home insurance, and general maintenance costs, and where I wanted to modernise parts of the house e.g. bathroom fittings, tiles, fitted wardrobes or buy my own white/electrical goods I have not asked for a contribution.

Property was bought at 385k originally, and valued by estate agents at around 700k, we have 110k left on the mortgage. The plan is to remortgage with my partner after we are married (we will settle the outstanding mortgage with the new lender), and this will be our home for good. Hence why I also want to remove the complexity of half being owned by my sibling.

My sibling's CGT after appropriate deductions is around 24k, whilst mine is 7k.

I'm seeing the buyout like others have said as if it was a sale to a third party, the seller still needs to settle the remaining mortgage with the lender, and you wouldn't make the buyer pay your CGT on top.

Your sibling is due more than half the remaining equity.

Personally I would do as follows:

Valuation £700k. Mortgage £110k, so equity £590k.

Tax and "selling" costs £32k (??) so deduct this from the equity, leaving £558k.

Splitting this equally, you get £279k each.

BUT... you should have been paying your sibling half the rental value for the period of time you've lived in it, so you need to work out how much this will be. e.g. if you used to get £1000 a month rent, and you've lived there 10 years, then you owe your sibling £500 x 12 x 10 = £60,000!!!

Obviously you can then deduct from this anything you have spent on improving and maintaining the property e.g. if you put a new bathroom in, the cost of the tiles etc... 

So you can see now why your sibling will be wanting more!

SDLT_Geek

sheramber said:

CGT needs to be calculated for the period it was rented out and was not the OP’s  main residence. 

Whether any tax is due will depend on the calculation 

You cannot cancel potential  CGT liability by moving into your rental property. 

The sibling’s CGT will be calculated for the whole period of ownership as he never lived in it.

Do you think OP would pay capital gains tax on OP’s share where OP is buying out a sibling?

_Penny_Dreadful

sheramber said:

CGT needs to be calculated for the period it was rented out and was not the OP’s  main residence. 

Whether any tax is due will depend on the calculation 

You cannot cancel potential  CGT liability by moving into your rental property. 

The sibling’s CGT will be calculated for the whole period of ownership as he never lived in it.

CGT liabilities arise when you dispose of an asset. The OP is not disposing of the property. Potentially in the future if the OP sells the property CGT might become an issue but not now. 

redjuice55

Thanks for everyone's feedback and thoughts. Had further discussions with the sibling, and we've come to an agreement on the money taking into consideration the mortgage, loss of rent and costs, which leads to them getting much closer to half the valuation, as opposed to equity. They've also agreed to pay their CGT