CGT for selling half share in inherited property to sibling

clod

Hello!

I have a question about when & how I would have to pay CGT if my brother buys my half of a jointly inherited house that he has lived in all his life (I live in my own house)

If we use a conveyancer to handle the deeds side, without any money being transferred - could then my brother pay me our agreed price over 2 (or more?) tax years, so I could declare the CGT each year and make use of CGT allowance for each tax year? Or, I've read something about having to pay full cgt on a house sale withing 60 days? Would selling half my share to by brother count as a sale in this case?

I completely trust my brother with transferring the funds & he wouldn't need to get a mortgage etc..

Thanks in advance for any advice

JGB1955

When did you inherit your share in the house?  Who is currently listed as owner(s)?  

clod

Hi, we inherited the house in 2007 & it is just me and my brother as the owners

silvercar

You could sell a small share each year. Bear in mind that CGT allowance is only £3,000. 

Do you have a spouse? You could transfer your share to joint names and then both sell a small share to your brother, so 2 x £3,000 allowance each, each tax year.

silvercar

clod said:

Hi, we inherited the house in 2007 & it is just me and my brother as the owners

How much is the gain since its value in 2007?

clod

we've estimated it's gained around 50-60k since 2007
and I'm going to sell my share for a bit less than it could be, just because he's my brother and has helped us over the years
I', presuming my gain is what I sell for rather than what it could be worth? so if i sold for the 2007 value, there wouldn't be any cgt due?

poseidon1

clod said:

Hello!

I have a question about when & how I would have to pay CGT if my brother buys my half of a jointly inherited house that he has lived in all his life (I live in my own house)

If we use a conveyancer to handle the deeds side, without any money being transferred - could then my brother pay me our agreed price over 2 (or more?) tax years, so I could declare the CGT each year and make use of CGT allowance for each tax year? Or, I've read something about having to pay full cgt on a house sale withing 60 days? Would selling half my share to by brother count as a sale in this case?

I completely trust my brother with transferring the funds & he wouldn't need to get a mortgage etc..

Thanks in advance for any advice

No general position is your contract cgt event date would be the date of the agreement with your brother for the entire buy-out  price with tax due 60 days later as you read. The fact you both agree an instalment payment plan does not assist you ( although it assists him).

Your cgt exposure would be current market value ( less potentially 10% for joint owner special circumstance  if this is how you agree the value between you) less original probate valuation in 2007.

For your protection, registration of your transfer of ownership should not occur until after you receive your entire sale proceeds. Alternatively if you do complete the TR1 AP1 forms in his favour, you place a legal charge against title pending clearance of your remaining proceeds. Trust is a good thing but belt and braces protection as part of a commercial transaction between you is prudent - what if were to die , bankrupt, divorce before coughing up the remaining amount?

Bookworm105

clod said:

I', presuming my gain is what I sell for rather than what it could be worth? so if i sold for the 2007 value, there wouldn't be any cgt due?

your presumption is dangerously incorrect 
sale to a sibling is classed as a "connected person" transaction so the sale "price" must be the full market value, not some arbitrary "discounted" value, whether paid in cash or not. 

Your CGT will be based on 2025 market value - 2007 value at date of death which you estimate is 50-60k split between the two of you obviously (I assume you own as 50/50 equal shares).

You will need to get a valuation done for the 2025 figure:
- you could get a few estate agents to give your a sales price. They may or may not charge a fee for doing so (fee is allowed against CGT) but it is very likely that such a value would be an optimistic "asking price" and so inflate your gain,
OR
- you could look at actual sold prices (Rightmove etc) for identical, or as near identical, properties as you find in your areas in the last few months and use the average of those sold prices as the basis of your tax calculation. That will save you having to pay valuation fees but you would be on your own if HMRC challenge it.
OR
- you could pay a professional valuer (eg RICS surveyor holding the valuation qualification) to produce a figure that reflects the fact what is being sold is a half share of a property occupied by someone else which therefore means it is less than half value of an unoccupied property. That may reduce your gain and the valuer would have great credibility if HMRC challenges their figure.

If you decide to split the sale across a number of tax years be very careful as HMRC computers will spot that and staff may decide to invoke their anti avoidance powers to overturn the splitting of the asset into "artificial" chucks for the sole purpose of manipulating (they use the word "exploiting") the CGT allowance 

clod

Thank you all for the advice, this is exactly what I was wanting to find out.

So what I'm understanding from this (and if anyone can confirm?) is that, CGT will be due within 60 days of my brother taking ownership, regardless of if any money has actually changed hands at this point and, the amount due will be based on the current value minus the 2007 value (which can be challenged), regardless of what we actually decide on price between us?

Keep_pedalling

CGT is based on market value rather than the amount paid when selling to a connected person. 

poseidon1

clod said:

Thank you all for the advice, this is exactly what I was wanting to find out.

So what I'm understanding from this (and if anyone can confirm?) is that, CGT will be due within 60 days of my brother taking ownership, regardless of if any money has actually changed hands at this point and, the amount due will be based on the current value minus the 2007 value (which can be challenged), regardless of what we actually decide on price between us?

I think all responses have been clear on where you stand here.

You can certainly choose to sell at under value. HMRC will nonetheless want tax  on the true market value 60 days thereafter, regardless of ' mates rates', or instalment plans.

 Also bear in mind after paying the tax within 60 days you are also required to submit a self assessment tax return to report the transaction ( yet again) for the tax year concerned, which gives HMRC an opportunity to scrutinise your numbers and the original basis upon which you paid the CGT. If they do not like what they see, they have powers to penalise you up to 100% of tax underpaid plus interest for late payment.