Selling share of home to sibling

rob_devita

Good evening all

My brother, sister and myself inherited our parents house 4 years ago. My sister has been living in the house since then. 

My brother wants to sell his third of the house. My sister has agreed to buy his share for £79,990.
House valued at £239,970.
£235,000 when we acquired it.
£1657 gain over the 4 years per person 

Due to land registry rules, my name must come off the deeds as it must be done as a whole (if I am on it, we will have to pay stamp duty as it's my 2nd home)

I have agreed to come off the deeds and my sister will be the sole name on the deeds.

I will then get a declaration of trust written up that confirms my 3rd share in the house.

1. Will see have to pay stamp duty?
2. Do I pay capital gains if I have relinquished my 3rd 
3. Any other tax issues I need to consider now and for the future?

Thanks Rob 

Keep_pedalling

You already own one third of it and why do you think you would have to pay stamp duty?  Is there any reason why your sister can’t buy you out as well as you don’t benefit in any way from this ownership?

SDLT_Geek

rob_devita said:

Good evening all

My brother, sister and myself inherited our parents house 4 years ago. My sister has been living in the house since then. 

My brother wants to sell his third of the house. My sister has agreed to buy his share for £79,990.
House valued at £239,970.
£235,000 when we acquired it.
£1657 gain over the 4 years per person 

Due to land registry rules, my name must come off the deeds as it must be done as a whole (if I am on it, we will have to pay stamp duty as it's my 2nd home)

I have agreed to come off the deeds and my sister will be the sole name on the deeds.

I will then get a declaration of trust written up that confirms my 3rd share in the house.

1. Will see have to pay stamp duty?
2. Do I pay capital gains if I have relinquished my 3rd 
3. Any other tax issues I need to consider now and for the future?

Thanks Rob 

I will assume the property is in England, so the relevant stamp duty is stamp duty land tax.

I am not sure that I agree the text in bold above.  In any sane world, you are not a "purchaser" for SDLT purposes, you retain your share.  I know that HMRC have some strange ideas here, so that I can see a cautious approach might be taken, given that you have another property.  Another way of documenting the transaction might make it clearer that one sibling is buying the other out, without you selling or buying a share.

Your sister does not need to borrow to fund the purchase?  If she did, that would be relevant to whose name the property should go into and whether the lender would accept you having a beneficial share in the property (unlikely I expect for most lenders).

I cannot see how you could possibly be making a disposal for CGT purposes if the documentation is clear that you retain your undivided one third share.

rob_devita

This is the explanation from my solicitor 

I appreciate you receiving responses from HMRC however as they are separate department to HM Land Registry it is not a surprise that they are not familiar with the nuances of the transfer of equity process. In a nutshell the Transfer Deed is set out in a particular way as to display the current owners of a property and the “new” owners of the property in order for Land Registry to process the new Title (i.e. in the first section they cross examine that all 3 of your names will be present as per the current Title Register to ensure all parties are agreeable to the transfer; then in order to produce a new Title Register they use the names shown in the second section. As such if it was just your sisters name is present on the Transfer Deed it will go to her sole name hence why you will both need to be included on the deed and this will incur SDLT charges if consideration is to be over £40k).

 

Although I appreciate it would be seen from a logical perspective that your sister would own 2/3s and yourself 1/3 (which can be distinguished in the transfer deed for legal/beneficial interest purposes) the way in which the Land Registry processes the deed will be that the names in the section for the “new” owners will be put on the title, the consideration noted in the deed will be applied to both names regardless of the proportion paid by each as the application is considered by them on a transactional (as a whole) basis and not on an individual basis. As such even if we were to state you will pay a certain amount and your sister will pay another they will use the consideration as a whole regardless. I appreciate this is frustrating, unfortunately it is just the way that they work.

rob_devita

To keep_pedalling

My sister cannot afford to buy us both out.
I have to pay stamp duty as it's not my main residence, even though I own a third 

p00hsticks

rob_devita said:

To keep_pedalling

My sister cannot afford to buy us both out.
I have to pay stamp duty as it's not my main residence, even though I own a third 

But Stamp duty is only applicable when you buy a property - you already own it (or at least a third of it ?).

As it is not your primary residence, Capital gains tax would potentially be applicable if you were to sell it. 

SDLT_Geek

rob_devita said:

This is the explanation from my solicitor 

I appreciate you receiving responses from HMRC however as they are separate department to HM Land Registry it is not a surprise that they are not familiar with the nuances of the transfer of equity process. In a nutshell the Transfer Deed is set out in a particular way as to display the current owners of a property and the “new” owners of the property in order for Land Registry to process the new Title (i.e. in the first section they cross examine that all 3 of your names will be present as per the current Title Register to ensure all parties are agreeable to the transfer; then in order to produce a new Title Register they use the names shown in the second section. As such if it was just your sisters name is present on the Transfer Deed it will go to her sole name hence why you will both need to be included on the deed and this will incur SDLT charges if consideration is to be over £40k).

 

Although I appreciate it would be seen from a logical perspective that your sister would own 2/3s and yourself 1/3 (which can be distinguished in the transfer deed for legal/beneficial interest purposes) the way in which the Land Registry processes the deed will be that the names in the section for the “new” owners will be put on the title, the consideration noted in the deed will be applied to both names regardless of the proportion paid by each as the application is considered by them on a transactional (as a whole) basis and not on an individual basis. As such even if we were to state you will pay a certain amount and your sister will pay another they will use the consideration as a whole regardless. I appreciate this is frustrating, unfortunately it is just the way that they work.

You could refer your solicitor to Land Registry Practice Guide 21 which explains how a transfer can be worded to make it clear that a share in the property is being transferred: https://www.gov.uk/government/publications/using-transfer-forms-for-less-straightforward-transactions/practice-guide-21-using-our-forms-for-complex-and-more-unusual-transactions#transfer-of-a-share

rob_devita

p00hsticks said:

rob_devita said:

To keep_pedalling

My sister cannot afford to buy us both out.
I have to pay stamp duty as it's not my main residence, even though I own a third 

But Stamp duty is only applicable when you buy a property - you already own it (or at least a third of it ?).

As it is not your primary residence, Capital gains tax would potentially be applicable if you were to sell it. 

It's not my main residence. It's classed as a 2nd home, therefore I have to pay stamp duty if over £40k, even if I'm not buying my brother out. Because my name will be on the deeds.

RAS

Not on property you inherit? @SDLT_Geek

rob_devita

Are there any tax issues I need to consider with a declaration of trust?

SDLT_Geek

RAS said:

Not on property you inherit? @SDLT_Geek

The inheritance itself was four years ago, and yes, I would expect normally the passing of the property on inheritance to be free of SDLT.  But now one sibling is buying the share of another (or bizarrely HMRC might say that two siblings are buying the share of another).