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Where Taxpayers and Advisers Meet

Individual tax liabilities associated with renting or selling jointly owned property

cs95tdg
Posts:10
Joined:Thu Mar 09, 2017 5:36 pm
Individual tax liabilities associated with renting or selling jointly owned property

Postby cs95tdg » Thu Mar 09, 2017 6:04 pm

I currently jointly (50:50) own the UK property I live in, with a sibling who is a non-UK resident.

I have been the sole resident of the property over the past few years and am now contemplating relocating due to work commitments. Because of this we are now considering our options in terms of either renting or selling the property. I have a few questions related to both options:

Renting the property:
1) If the property were to be rented, would the income received need to be split equally between the two owners? By mutual agreement, I have been living in the property almost rent free over the last few years (bearing repair/maintenance costs) so wanted to understand whether there would be anything stopping my sister from receiving a larger share of the income when it is rented. I.e. would the rental income need to be split equally as each of us owns a 50% share of the property? Or can the rental income be split between us so that my sister receives a higher %?
2) If the latter can be done, would any form of legal document need to be drawn up to indicate the exact split for the purposes of establishing tax liability?
3) What income tax would my sister be liable to pay in the UK on the rental income? She is an overseas citizen and a non-UK resident.

Selling the property:
1) Given that we own equal shares of the property am I correct in understanding that each of us would be liable to pay CGT on 50% of the capital gains?
2) My parents originally bought the property (approximately 30 years ago), and 50% of ownership was transferred to each of us at different points in time in the past. So initially my parents jointly owned it. Thereafter one parent and sister jointly owned it. Finally my sister and I now jointly own it. Given these circumstances, how would the capital gains amount be calculated to establish how much CGT each of us is liable to pay?
3) Is there any difference in what taxes my sister would be liable to pay given that she is a non-UK resident?

I am a novice in property related tax matters, so would appreciate assistance in getting answers to these preliminary questions. Apologies if these questions do not all fall under this sub forum.

someone
Posts:692
Joined:Mon Feb 13, 2017 10:09 am

Re: Individual tax liabilities associated with renting or selling jointly owned property

Postby someone » Fri Mar 10, 2017 12:41 pm

This is my understanding but I'm not an expert:

1. No. The income can be split in a different proportion to ownership
2. I don't believe so but I think you will have to let HMRC know (verbal agreement is sufficient I think, especially if you've then put it in writing to HMRC)
3. Absolutely no idea but I assume it will be taxed in her country of residence and not the UK

1. Yes. But assuming that you have been living in it as your primary residence for as long as you've owned it then you shouldn't have any CGT to pay (or declare on your tax return). Your sister presumably will though.
2. The starting value/date for CGT will be the time each of you acquired your share. There should have been some sort of valuation at that point (if it was a gift then CGT would have been paid at the time of the gift, it it was inheritance then IHT would have been paid)
3. I don't know and this is something that might catch her out. There's another question on this site recently from someone who sold a UK property while non resident and didn't file the correct forms in time and are now facing a 6K penalty for late filing (even though no CGT was apparently due)

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Individual tax liabilities associated with renting or selling jointly owned property

Postby bd6759 » Fri Mar 10, 2017 7:26 pm

1. The income is split in accordance with beneficial ownership.

2. not applicable

3. Uk tax is payable on property situated in the UK. There may aslo be taxes due in her place of residence.

4. CGT is payable on disposals. If you have lived in the property throughout ownership the whole gain is exempt. If you rent it for a while, part of the gain may be chargeable but there is also letting relief of up to £40K to take into account.

5. The gain is based on the acquistion costs. This would be the market value if gifted to you, or the probate value if inherited.

6. Your sisters gain will be based on the uplift in value since 6 April 2015 (as a non resident she is not liable to gains prior to then). Your sister's gain must be reported within 30 days of the sale.

cs95tdg
Posts:10
Joined:Thu Mar 09, 2017 5:36 pm

Re: Individual tax liabilities associated with renting or selling jointly owned property

Postby cs95tdg » Fri Mar 10, 2017 10:54 pm

Thank you both for replying.

I realise now that I need to find out exactly when/how the transfer of ownership occurred. We didn't inherit the property, so IHT didn't apply. It was a 50% transfer of ownership that happened but the transfer of my share happened several years after my sisters – I don’t really know when my sister acquired her share. As it’s been several years since this was done, and I don’t have the details, do you know what the easiest way would be for me to find out the date of original transfer and whether it was a gift? Would there be any particular record at the land registry that shows how each transfer of ownership happened? I don’t really know how many possible ways (gift, other form of transfer of ownership?) a transfer of ownership could have happened in this case (i.e. where there was no sale or purchase cost associated), and whether a valuation would have been necessary in all cases.

This is primarily for the benefit of my sister who hasn't been living in the country/property; it has been my primary residence for the whole duration of my ownership period.
1. The income is split in accordance with beneficial ownership.
How would beneficial ownership be established (given these particular circumstances)? Would it just be a matter of us agreeing on the % split (e.g. 30/70) of the rental income between us?
5. The gain is based on the acquisition costs. This would be the market value if gifted to you.
As there was no purchase cost, am I correct in understanding that this would in effect be considered a gift (from a legal title deed transfer perspective)?
. Your sisters gain will be based on the uplift in value since 6 April 2015 (as a non resident she is not liable to gains prior to then). Your sister's gain must be reported within 30 days of the sale.
Thanks for mentioning this. I wasn't aware that a change had happened in 2015. However when you say uplift in value since then, how would this uplift value be established? Note that I haven't done a valuation of the property over the years, so do not know what it would have been valued at in April 2015 or even before that. Though we do intend to get a estate agent valuation over the next couple of months.

cs95tdg
Posts:10
Joined:Thu Mar 09, 2017 5:36 pm

Re: Individual tax liabilities associated with renting or selling jointly owned property

Postby cs95tdg » Fri Mar 10, 2017 10:57 pm

Another option I am contemplating is to buy out my sisters half of the property (as she doesn't have a long-term interest in it) with a BTL mortgage.

I’m unsure whether this is even a viable option to consider, given that I would only be able to obtain a mortgage on the property if I were the sole owner. Would appreciate any insight from anyone who may have done something similar in the past.

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Individual tax liabilities associated with renting or selling jointly owned property

Postby bd6759 » Sat Mar 11, 2017 12:53 pm

You say you own the property 50/50. The income will be split 50/50. If you alter that proportion, one of you will be making a disposal to the other.

Being given the proeprty for no consideration is pretty much the definition of a gift.

You can ask a valuer to valuer to value the proeprty as at 5 April 2015, or you can simply time apportion the whole gain (e.g. owned for 20 years, sold 5 April 2017, therefore post April 2015 gain is 2/20ths).

If you buy your sister out, you will be the sole owner.

cs95tdg
Posts:10
Joined:Thu Mar 09, 2017 5:36 pm

Re: Individual tax liabilities associated with renting or selling jointly owned property

Postby cs95tdg » Mon Mar 13, 2017 10:26 pm

Thanks for the clarification regarding beneficial ownership and definition of what constitutes a gift.

Regarding the option of buying my sister out; the real question I had there is whether I would be permitted to apply for a mortgage on my own, on a property that has two owners listed on it's title. My assumption would be, that this isn't possible and thereby that would eliminate the possibility of mortgaging the property to raise part of the capital required to buy out my sister.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Individual tax liabilities associated with renting or selling jointly owned property

Postby maths » Mon Mar 13, 2017 10:58 pm

whether I would be permitted to apply for a mortgage on my own, on a property that has two owners listed on it's title.
The mortgagee (lending company) will wish to have a legal charge over the property which, where there are two on the legal title, will require both signatures/agreement.However, it may be that despite this, that the quantum of any loan could be based on your earnings alone.

cs95tdg
Posts:10
Joined:Thu Mar 09, 2017 5:36 pm

Re: Individual tax liabilities associated with renting or selling jointly owned property

Postby cs95tdg » Tue Mar 14, 2017 10:02 pm

whether I would be permitted to apply for a mortgage on my own, on a property that has two owners listed on it's title.
The mortgagee (lending company) will wish to have a legal charge over the property which, where there are two on the legal title, will require both signatures/agreement.However, it may be that despite this, that the quantum of any loan could be based on your earnings alone.
Thanks. I suppose the only way to find out for sure is to speak to a few mortgage providers. Will do this next to see where I stand.


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