molinari said:
Not sure if anyone can help, but it would be appreciated
.
My brother and I own a house, we have an equal 50% share each. I now want to buy the other half from him but we'd like to know if he would have to pay tax on the money he gets for his 50%? The house is worth £340k, so I plan to get a mortgage for £170k and give that all to him. There would be no estate agents fees etc... but would he have to pay any tax on selling his 50% share, or would he get to full £170k??
Firstly, yes, there is a tax liability if you buy him out.
However, if the house has been his home for the duration of his ownership, he'll PROBABLY have no liability. But be clear on this .... there are exceptions that. For instance, if the house and grounds are above a certain size (1.25 acres roughly). But
most sales of private residences don't give rise to a chargeable gain. Another exception could be if
part of the house was used for non-residential purposes, such as an office, studio, etc.
But, assume a liability does arise. The next point is that it is NOT onthe sale proceeds, or the value of his half of the house, but the
gain in value during his ownership.
If the house is worth £340k, then his half is £170. But if the house was bought (or inherited with a market value of ) £300k, then the gain is only the difference between the value at acquisition and the current value, i.e. £40k. And he's liable for half that.
Then, you have a (2006-2007) allowance of £8800 before any tax is payable. So if he made £20k, he'd get that £8800 allowance, and find £11,200 chargeable.
But .... there are all sorts of costs you can also offset against gain, before assessing the gain for CGT, such as many professional fees, etc.
And, if you've made capital expenditures (new kitchin, built extension, etc), you may well be able to add those costs to your cost of the asset, thereby reducing the chargeable gain.
It really is worth getting professional advice about this, because CGT is quite complex, and there are all sorts of allowances you may be able to claim, dependning (for instance) on how long you've jointly owned the property, and all sorts of expenses that can be offset. But much of that depends on whether those expenses could have been offset against income tax, because you'll generally get either capital benefit or income benefit, but not both.
The odds are he'll pay little tax, or more likely, no tax at all. But if he does, it'll be on the GAIN, not the
value of the house.
Oh, and don't think of doing some private deal on the value either. As your brother is a "connected person", he can't "sell" his share to you for £1, or something daft. If he does, it'll be the market value of the house that his CGT liability will be based on, not the disposal value. They have, I'm afraid, seen that one coming.
