Transfer of 50% of a property

by **ragbir** on Thu Oct 13, 2011 3:59 pm

Hi there,

Our family home (purchased in 1994) is currently owned by my brother and mother, 50:50. My brother wishes to transfer his share to me. I also live at the property. His share is valued at just under £250k. There is a mortgage on the property of £150k.

Are there any implications for tax, stamp duty or similar? Or can is this type of transfer tax free? Are there issues we need to consider or any courses of action which can mitigate any exposure to tax or other costs?

Appreciate the advice...

by **section 44** on Thu Oct 13, 2011 4:09 pm

Would you give any consideration (which would include assuming any debt) for the transfer? What, if anything, would happen with the mortgage (borrowers)?

by **pqtaxation** on Thu Oct 13, 2011 4:50 pm

section 44 wrote:Would you give any consideration (which would include assuming any debt) for the transfer? What, if anything, would happen with the mortgage (borrowers)?

I suspect additional information is required from original poster (OP) before being able to comment helpfully on his question about potential liability to taxes (CGT and SDLT) arising from OP's brother gifting his 50% interest to OP. Presumably OP and his mother hold their 50% interests as tenants in common.

Who purchased the house in 1992, at what cost including legal fees, have there been any capital improvements and their cost, and how has the beneficial ownership changed since then? If your mother and father were the original purchasers and your brother inherited his 50% share on your father’s death then when did your father die and what probate value was attributed to his 50% interest?
Who has lived in house since 1992 with dates?

In whose name(s) is mortgage whose current balance is about £150k.

Is current market value of entire house about £500k?

by **Tax Champion** on Thu Oct 13, 2011 4:53 pm

Regardless of consideration paid or mortgage, your brother will have a capital gains tax liability calculated by reference to the increase in value of his share. This may however be nil, or at least reduced, if the property has been his home.

by **ragbir** on Sun Oct 16, 2011 10:19 am

Hi,

First let me say thank you to all who responded, it's most enlightening and also kind of you to take the time.

As I see it there were a few questions:

Q1. Would you give any consideration (which would include assuming any debt) for the transfer? What, if anything, would happen with the mortgage (borrowers)?
A: Well, as I understand it the most tax efficient way to handle it is if the original owner (my brother) continues to pay the mortgage. Is this correct? If not, is it better if it transfers to me?

Q2. Presumably OP and his mother hold their 50% interests as tenants in common.
A: I'm sorry I don't know what this means. They both exist on the Title Deed. And they both live at the address. Is that tenants in common?

Q3.Who purchased the house in 1992
A. It was a joint purchase between my mother and brother

Q4. At what cost including legal fees
A. I think the total cost was £250k for the property at the time

Q5 have there been any capital improvements and their cost
A: Yes, the property was totally renovated - circa £150k when we first moved in, and again, circa £70k in 2008

Q6. and how has the beneficial ownership changed since then?
A: Not sure what you mean, but the ownership has always been in my mother and brothers names.

Q7. Who has lived in house since 1992 with dates?
A: My Mother, father, brother and myself since 1997 (it took 3 years to renovate). My brothers wife in 2008, and his child in 2010.

Q8. In whose name(s) is mortgage whose current balance is about £150k.
A: My brother and mother

Q9. Is current market value of entire house about £500k?
A. Yes, thereabouts, we haven't had multiple valuations done though. It may be higher.

Q10. Regardless of consideration paid or mortgage, your brother will have a capital gains tax liability calculated by reference to the increase in value of his share. This may however be nil, or at least reduced, if the property has been his home.
A. His share is 50%. The property has gone from £250k to £500k. And he has lived their the entire time, and paid for most of the renovations.

Hope this clarifies, is the advice any different given the answers above?

Thanks all.

by **pqtaxation** on Sun Oct 16, 2011 12:59 pm

ragbir wrote:

Q1. Would you give any consideration (which would include assuming any debt) for the transfer? What, if anything, would happen with the mortgage (borrowers)?
A: Well, as I understand it the most tax efficient way to handle it is if the original owner (my brother) continues to pay the mortgage. Is this correct? If not, is it better if it transfers to me?

Q2. Presumably OP and his mother hold their 50% interests as tenants in common.
A: I'm sorry I don't know what this means. They both exist on the Title Deed. And they both live at the address. Is that tenants in common?

Q6. ow has the beneficial ownership changed since then?
A: Not sure what you mean, but the ownership has always been in my mother and brothers names.

Q7. Who has lived in house since 1994 with dates?
A: My Mother, father, brother and myself since 1997 (it took 3 years to renovate). My brothers wife in 2008, and his child in 2010.

It looks now as though your brother and his family wish to move out. It is not clear from what you write whether you plan to buy your brother’s 50% interest at market value (about £250k) or he will gift his share to you for no payment (consideration) from you? The £150k mortgage in joint names is obviously a factor to address. It’s not clear what is the tax efficiency that you refer in extract copies above – can you explain that and why your brother should continue to make mortgage payments on a house he no longer owns or lives in?

From your figures there does not seem to have been much overall unrealised capital gain from 1994 to now: – purchase price in 1994 (£250k)+ renovation costs 1994-97 (£150k) + more recent improvements in 2008 (£70) = £470k compared with a current market value of around £500k. Implies unrealised capital gain is only about £30k. Such a low figure looks unlikely given house prices inflation between 1997 and 2007.

From what you write the house has been the only residence since 1997 of both its co-owners –your brother and mother- and would qualify for relief from capital gains from then until now. The renovation period of 1994-1997, when no one lived there, is probably relievable for 12 months of that period leaving some 2 years unrelievable (out of the 17 since 1994). Where did family live until 1997 and was principal private residence relief claimed by family during that period assuming they sold another house in 1997.

Just taking the above figures at face value to illustrate calculation methodology (though actual time figures should be put in months not years) for calculating potential capital gain for your brother on his 50% interest:
Brother’s unrelieved unrealised capital gain = 0.5 (ownership share) *(500-470) *2/17 = £2k.

This is well below the current annual exempt amount of £10.6K for capital gains.

If your brother paid more than 50% of improvements costs then there would be no capital gain.

By all means come back here with the answers to the questions I have posed for further comments from me and/or others here. But it does appear from what your write in excerpts above that you have only a limited understanding of the legal and taxation aspects of house ownership and so you, your brother and mother (not clear why your father plays no part) should discuss with and take professional advice from a solicitor and/or qualified accountant before proceeding.