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Buying half a house

Discussion in 'General Discussion' started by molinari, 31 May 2006.

  1. molinari

    Soldato

    Joined: 6 Jan 2003

    Posts: 5,196

    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??
     
  2. Raumarik

    Capodecina

    Joined: 14 Jul 2003

    Posts: 13,822

    I don't know mate, must admit I would have assumed he'd not have to BUT this is the UK, I bet he has to :(
     
  3. Kell_ee001

    Capodecina

    Joined: 19 Oct 2004

    Posts: 12,386

    Location: Jesmond

    You're best off asking your solicitor - you'll have to get one involved for all the paper work anyway :)
     
  4. kaiowas

    Capodecina

    Joined: 18 Oct 2002

    Posts: 10,405

    Location: Castle Anthrax

    Did you inherit the house together or did you buy it some time ago? I'm no expert but I'm sure that'll have some bearing on the situation.
     
  5. Buttons

    Hitman

    Joined: 24 Oct 2002

    Posts: 980

    Location: Manchester

    I'd imagine that if he's selling his primary residence and moving to a new property then he's fine.

    If you own the house but don't live in it, you'll need to find a loophole as that is a capital gain.

    I'm not an expert though, just what little reading I've done on t'internet.
     
  6. Rotty

    Don

    Joined: 18 Oct 2002

    Posts: 41,063

    Location: Notts

    correct , primary residence attracts no tax , other attracts capital gains ( allowances apply )
     
  7. CF93

    Hitman

    Joined: 28 Jan 2005

    Posts: 974

    Depends on what the property is used for.

    If the property is your brothers "PPR" - Personal Place of Residence, ie its where he lives, it is exempt from Capital Gains tax. Whether or not he'd have to pay income tax I don't know.
    However, if there is someone else other than your brother living there and paying rent to you/your brother then even if your brother lives in the property, it is subject to tax because it's classed as a business (because it's rented out.)

    If he lives somewhere else then the receipt on the sale is subject to Capital Gains tax, because it's not his PPR.

    But the best advice has already been given - speak to a professional financial advisor.
     
  8. molinari

    Soldato

    Joined: 6 Jan 2003

    Posts: 5,196

    Thanks for the replies.
    I was going to contact my solicitor to ask them but posted here just as a quick check to see what anyone else may know.
    We inherited the property and he doesn't live there so I guess he'll have to pay capital gains tax, unless we can get around it somehow.
     
  9. Tesla

    Capodecina

    Joined: 19 Jan 2003

    Posts: 17,414

    Location: Bristol, UK

    Maybe he should move back in for a week?
     
  10. leaskovski

    Sgarrista

    Joined: 22 Oct 2004

    Posts: 9,086

    Location: Berkland

    If i remember correctly (as i am in the same situation with my parents) you can pay him upto a certain amount a year before the tax sticks his dirty mits in.
     
  11. Rotty

    Don

    Joined: 18 Oct 2002

    Posts: 41,063

    Location: Notts


    there is a minimum period need to qualify :)
     
  12. Rotty

    Don

    Joined: 18 Oct 2002

    Posts: 41,063

    Location: Notts


    something around 7 grand I think
     
  13. leaskovski

    Sgarrista

    Joined: 22 Oct 2004

    Posts: 9,086

    Location: Berkland

    Yeah that sounds about it. I pay them back 500 smackers a month to buy them out of my house. :D
     
  14. Sequoia

    Wise Guy

    Joined: 15 Aug 2005

    Posts: 2,948

    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.