Inherited 50% Share of Home with Sibling Who Lives in the House

Donnywhite1801

RHemmings said:

Just a question: if the house was sold, would your sister and nephew be able to afford a smaller property which they could own 100% with an affordable mortgage? But, still be suitable for their needs? 

My reason for asking is to understand whether the preference for the OP's sister and nephew to stay in the house is one of simple preference, or if it's a need. 

It would be their preference to stay in the house and I would be happy for them to do that as well but in a way that means I can still claim my 50%, or part of it as a lump sum.  They could afford another property if it was sold, it's just they don't want to go through the upheaval of moving and in theory it would be a simpler option all round if they could stay.  Just trying to be a good brother at a difficult time.

Myci85

Donnywhite1801 said:

RHemmings said:

Just a question: if the house was sold, would your sister and nephew be able to afford a smaller property which they could own 100% with an affordable mortgage? But, still be suitable for their needs? 

My reason for asking is to understand whether the preference for the OP's sister and nephew to stay in the house is one of simple preference, or if it's a need. 

It would be their preference to stay in the house and I would be happy for them to do that as well but in a way that means I can still claim my 50%, or part of it as a lump sum.  They could afford another property if it was sold, it's just they don't want to go through the upheaval of moving and in theory it would be a simpler option all round if they could stay.  Just trying to be a good brother at a difficult time.

Good for you for being a decent person. So many people seem to only think about their personal gain, and yes whilst it's good to be aware of the potential downfalls, it speaks volumes of you as a person that you want to make this work for your sister and nephew. I'm sure your mum would be very proud of you. 

RHemmings

Donnywhite1801 said:

RHemmings said:

Just a question: if the house was sold, would your sister and nephew be able to afford a smaller property which they could own 100% with an affordable mortgage? But, still be suitable for their needs? 

My reason for asking is to understand whether the preference for the OP's sister and nephew to stay in the house is one of simple preference, or if it's a need. 

It would be their preference to stay in the house and I would be happy for them to do that as well but in a way that means I can still claim my 50%, or part of it as a lump sum.  They could afford another property if it was sold, it's just they don't want to go through the upheaval of moving and in theory it would be a simpler option all round if they could stay.  Just trying to be a good brother at a difficult time.

Thanks. It's your choice to sacrifice your own preferences in favour of your sister and nephew if you wish. (I don't mean that as criticism). But, to try and have your cake (sister and nephew stay in the house) and eat it too (get a lump sum), things are getting complicated. There are posts upthread which discuss the difficulties, e.g. of getting a mortgage on 30% of the total value. 

I understand you wish to be a good brother, but getting your lump sum out of the house is going to make things complicated for everyone. You have your own mortgage, and I presume that the sale of the house and you receiving your 50% would go some way to clearing that mortgage. 

It's easy for me, someone who is not emotionally involved in the situation, to say. But, the upheaval of moving may be counterbalanced by a simpler situation in the future. 

Bookworm105

Donnywhite1801 said:

Bookworm105 said:

Donnywhite1801 said:

No, probate going through at the moment so not looking to do something straight away, just looking at options.

CGT will be due on the difference between probate value and what it (finally) sells for because it is not your main home

Thanks for taking the time to provide the above info, much appreciated although not sure I understand it all

So, if we basically sold it now and took 50% each, there is no inheritance tax as it's below the threshold and no CGT tax for either to pay, so long as the value is the same as the probate value - is that correct?  

correct.
Sold "quickly" then there is little chance of a gain between value at date of death and selling price.
Only you face CGT exposure. As mentioned, sibling lives in it as her main home so she does not have CGT exposure. 

Donnywhite1801 said:

If my sister bought me out, either in full or just 30% of my 50%, then I would be liable for tax on the full 30% value or just the difference between 30% of the probate value and 30% of the value at the time of the mortgage being arranged?

your exposure would be on the 30% which has changed ownership from you to her.
your gain would be the difference between 30% of the probate value of the whole house and whatever that 30% share is valued at on the date the ownership changes.

The amount she borrows as a mortgage is irrelevant.

Your tax exposure is based on the valuation, not on the price paid, because you are connected persons. (Connected people could evade tax by agreeing a discounted price, hence the rule says use value, not price paid)

silvercar

Letting the sister buy you out now limits any CGT exposure. The only exposure now is the difference between probate value and current value, which I’m guessing is small.

if your sister buys you out, she then owns all the property, so no further CGT liability for you. She gets a mortgage for 30% of the value, you put a charge on the deeds for the remaining 20%. Either as a cash value or as a percentage share. This way the mortgage is in her name only and you aren’t liable for it. The only risk is if the property value tanks, so her 30% mortgage doesn’t cover all her equity, leaving less than 20% for you. But that is highly unlikely- a £100k property with mortgage of £30 k would have to be worth less than. £50k before you would lose any of your £20k equity.

you are being a kind brother, as you are losing the value of having that 20% of the equity now and not charging rent on the 20% share. 

Bookworm105

if you do the charge option to secure the balance of the remaining share she has not yet paid you for, then bear in mind the tax implications of the option you choose:

- if the charge is for a fixed sum of money equal to 20% of the value of the property at the point you sold the property to her then there will be no further tax implication for you. 

- if the charge is for a sum of money (the principal) plus an interest rate then you would be liable for income tax on the interest earned. There would be no tax due on the principal.

- if the charge is instead on an equity basis, ie for 20% of the value of the property at a future date then you would remain liable for CGT on the gain of that 20%

Silvertabby

Could the sister and her (adult)  son get a joint mortgage for 50%?  Not an ideal solution, but possibly less messy than a 30% mortgage and a remaining charge on the house.

TheJP

DE_612183 said:

don't know if you can have a mortgage on 30% of a property - what happens if they fall behind on payments?

The sister would own 80% of the house with 30% mortgaged. The OP would retain 20% of the property.

DE_612183

TheJP said:

DE_612183 said:

don't know if you can have a mortgage on 30% of a property - what happens if they fall behind on payments?

The sister would own 80% of the house with 30% mortgaged. The OP would retain 20% of the property.

you can't repossess 80% of a property though! So the OP would be left with 20% of whatever value the bank could get out of a repossession sale.

Donnywhite1801

Silvertabby said:

Could the sister and her (adult)  son get a joint mortgage for 50%?  Not an ideal solution, but possibly less messy than a 30% mortgage and a remaining charge on the house.

That would obviously be ideal and if they could it would solve a lot of problems, however, it's unlikely that they could.