Sell inherited property to sibling for less than probate value

MontyMoggs

Hi, first post so apologies if I have made any error in where to post. 

My father has passed away and I am set to inherit both of his properties. 

My half sibling lives in dad's second property and has done for several years.
This has been an agreement between them and their stepfather (my dad) as it was beneficial to both parties, 1. for my sibling to live independently and  2. for my dad to have the property occupied rather than sat empty.
No rent was paid, my sibling was allowed use of the property on the agreement that they paid all bills and relavent costs for living there and kept it in a good state of repair (council tax, insurance, utilities etc.)

They are reluctant to move, but they also understand that I will need to sell one of the properties in order to pay the inheritance tax due on the estate. 
Personally I would like to hold on to my father's main residence, which leaves this second property in the firing line to be disposed of.

They have expressed interest in buying it from me, which I am agreeable to, and would sell the property to them at a discount. (they are likely to fall short of the probate valuation by around £40k on a mortgage anyway.)

I would be happy to take that "loss" on the value of the property as it keeps the family happy and I won't exactly miss what I've never had, so long as the amount raised by the sale covers the somewhat scary amount of IHT & solicitors fees owed, and hopefully allows me some funds to make repairs to the property I wish to keep.

I understand the difference between the sale price and the market value of the house would be treated as a "gift". 

Would this be a workable solution for everyone involved or is it more trouble than it's worth selling it to them this way?

I have read that it is possible to get a mortgage in this kind of situation, but that it may be more difficult for them to find a lender? 

I have no real world experience of property and mortgage matters so I'm quite lost with it all

Thanks

Keep_pedalling

If you are happy with the price you will get from this arrangement then I would think it is going to be a lot quicker with lower costs than selling on the open market. 

If you do this then it would be worthwhile making a deed of variation to avoid your gift staying in your own estate for IHT purposes for the next 7 years.

NorthYorkie

Keep_pedalling said:

If you are happy with the price you will get from this arrangement then I would think it is going to be a lot quicker with lower costs than selling on the open market. 

If you do this then it would be worthwhile making a deed of variation to avoid your gift staying in your own estate for IHT purposes for the next 7 years.

But Monty seems to be saying that he needs to realise cash to pay the IHT, which would still be payable even if the second property was left to half-sibling via a Deed of Variation. Without any further information it is difficult to know what options are available.

MontyMoggs

NorthYorkie said:

Keep_pedalling said:

If you are happy with the price you will get from this arrangement then I would think it is going to be a lot quicker with lower costs than selling on the open market. 

If you do this then it would be worthwhile making a deed of variation to avoid your gift staying in your own estate for IHT purposes for the next 7 years.

But Monty seems to be saying that he needs to realise cash to pay the IHT, which would still be payable even if the second property was left to half-sibling via a Deed of Variation. Without any further information it is difficult to know what options are available.

Dad died intestate, he was one of those "I'm going to live forever" types so he never made a will. 
As his only biological child, I'm the sole heir under intestacy rules. 

My parents were never married. 

Dad inhereted both properties from his parents around 25 years ago, so they were owned outright.

There is no cash or savings in the estate to really speak of, he had around £4,000 in his bank account when he passed, with a chunk of that likely owed back to DWP for overpayment of AA. 
There is also a credit card debt of around £5,000 to consider as well.

The inheritance tax on the estate will be around £62,000. And there will also be the probate solicitors fees to pay on top of that. 

Without selling a property I will be unable to pay any of this.

poseidon1

Assuming the sale will attract SDLT, the solicitor handling the sale on your brother's behalf will be bound to calculate SDLT on the full market value of the property and not whatever discounted value you agree. See article below

https://www.ukpropertyaccountants.co.uk/selling-house-below-market-value/

Depending on how long since your father died, the property value may have increased compared to current market value, so there could also be a taxable capital gain to contend with either on you or the estate.

Needless to say, a discounted sale price of the property cannot replace probate value for IHT purposes.

So a couple of tax issues to consider beyond raising a mortgage on what looks to be a gifted deposit basis.

MontyMoggs

poseidon1 said:

Assuming the sale will attract SDLT, the solicitor handling the sale on your brother's behalf will be bound to calculate SDLT on the full market value of the property and not whatever discounted value you agree. See article below

[link removed to be able to post] 

Depending on how long since your father died, the property value may have increased compared to current market value, so there could also be a taxable capital gain to contend with either on you or the estate.

Needless to say, a discounted sale price of the property cannot replace probate value for IHT purposes.

So a couple of tax issues to consider beyond raising a mortgage on what looks to be a gifted deposit basis.

Not too worried about the taxes involved with selling, 
Based on the numbers as of today, (the houses were valued last week) the calculations are coming back saying that there would be no CGT or stamp duty payable,
The property in question is well under the £300,000 threshold for SDLT at its current market value so as a first time buyer, their rate would be 0%. 
(the area it is situated in also has a fairly stagnant housing market.)
CGT calculation was done on the . gov calculator using market value and estimated costs of completing sale)

As I understand it, I shouldn't have any SDLT to pay as the seller, but please correct me if I'm wrong - as previously mentioned, I don't have any experience in property matters. 

I know these calculators aren't always correct, and other things can rear their ugly little heads at any point, but they have given enough of an idea to make it seem like the least of my worries for the moment. 

Avoiding having to market the property is a very attractive prospect, but they will need to get a wiggle on and see about getting a mortgage if they are truly serious about buying.

Keep_pedalling

NorthYorkie said:

Keep_pedalling said:

If you are happy with the price you will get from this arrangement then I would think it is going to be a lot quicker with lower costs than selling on the open market. 

If you do this then it would be worthwhile making a deed of variation to avoid your gift staying in your own estate for IHT purposes for the next 7 years.

But Monty seems to be saying that he needs to realise cash to pay the IHT, which would still be payable even if the second property was left to half-sibling via a Deed of Variation. Without any further information it is difficult to know what options are available.

I was not suggesting the whole property by DoV just a portion of it to cover the £40k discount (gift),

highlander58

Couple of curved balls:
1. If your father had made a Will - do you think he would he have just left the house to your sibling anyway?
2. As the estate is so small & uncomplex, only assets being the 2 properties - do you really need to pay a solicitor to do Probate for you? 

You’ve used gov.uk to find out lots of other stuff already & it sounds like you have the necessary figures at your fingertips.
In my experience Probate are very helpful with queries from ‘civilians’ - just batch them up. 

Arctos

highlander58 said:

Couple of curved balls:
1. If your father had made a Will - do you think he would he have just left the house to your sibling anyway?
2. As the estate is so small & uncomplex, only assets being the 2 properties - do you really need to pay a solicitor to do Probate for you? 

You’ve used gov.uk to find out lots of other stuff already & it sounds like you have the necessary figures at your fingertips.
In my experience Probate are very helpful with queries from ‘civilians’ - just batch them up. 

Between us, my wife and I have dealt with Probate for 3 family deaths. Probate were excellent. You may find that solicitors don't necessarily do the job as quickly as you might and may be interested in taking as much in fees as they can.
As far as property valuation goes, try different local estate agents. They can give a valuation for "a quick sale" which may be more favourable to your situation than an approach to selling that starts with a view to maximum price and gradually reduces over time. You don't need to give a reason for what is usually a free valuation. Then pick the cheapest! Also look on property websites to see the prices realised for comparable houses - bear in mind in some areas prices have recently been falling, also specification and condition will affect price. A property with expensive fittings and modifications such as added ensuites installed to a high standard will not be the same price as one "requiring modernisation and renovation" even if they have the same footprint and number of rooms. 

NorthYorkie

You say "As his only biological child, I'm the sole heir under intestacy rules. " What actually is the status of your half-sibling? Was he legally adopted by your father? (just a thought).

MontyMoggs

highlander58 said:

Couple of curved balls:
1. If your father had made a Will - do you think he would he have just left the house to your sibling anyway?
2. As the estate is so small & uncomplex, only assets being the 2 properties - do you really need to pay a solicitor to do Probate for you? 

You’ve used gov.uk to find out lots of other stuff already & it sounds like you have the necessary figures at your fingertips.
In my experience Probate are very helpful with queries from ‘civilians’ - just batch them up. 

1. I'm Unsure, but I'd lean more towards no. 

2. Probate solicitors have already been instructed as the whole process was beyond me. It's the first death where I've had to deal with someone's affairs.
It seemed like a better idea to get them to do it rather than try and muddle through, everything seemed so rushed and scary at the time I just said yes to it.