Tax liability on shared property

[mardle777]

Hi, I bought a building plot with my brother for 50k, paying 25k each. We have built the house, I have paid for almost all of the build, another 30k. My brother moved into the house and it has been his main residence, but I have never lived there and would be liable to capital gains tax on the sale. We are looking to sell and have had the house valued at 160k, if we receive the asking price what would be our respective tax liabilities?
Based on what I have researched, my brother would effectively receive 80k with no tax to pay, where as I would be taxed on my 80k as follows:-

£80k - £25k my half of plot purchase - £30k my building costs = £25k profit
£25k profit - £10,900 = £14,100 x 18% = £2,538

I would be grateful if anyone could clarify this or perhaps correct me if i am misunderstood.
Many thanks

[Peter D]

How long did he live in the property and how much is your total income in the FY of disposal. Regards Peter

[mardle777]

Hi there. Brother has lived there for 18 months and my total income in the year of disposal would be £22k

[bd6759]

I'd be concerned that you are splitting the proceeds 50/50, but allocating the expenditure on a different basis.

[mardle777]

The costs are disproportionate because my brother did not have the funds and on completion I already had somewhere to live while he was renting so it seemed logical for him to move in to the house and claim it as his main residence.

[bd6759]

I understand that, but for CGT, the costs need to be apportioned the same way as the proceeds.

[maths]

The resultant CGT consequences depend upon the agreement between the brothers.

Typically one might expect all costs to be divided equally and any sale proceeds to be similarly divided.

If, as is mentioned, one brother had insufficient funds and the other brother agreed to merely fund the build but with 50% of the cost remaining as a debt due from the other brother then CGT would (as above) be based on equal split of costs and sale proceeds.

The above assumes that beneficial ownership is split 50/50.

Alternatively, the brothers may have agreed to fund the purchase 50/50 (as happened) but one brother agreed to pay for the build in its entirety (ie no debt due from other brother). Sale proceeds to be split 50/50. Beneficial ownership split 50/50. Under this scenario, the costs of one brother are 25K and for the other [30 + 25] ie 55K. The former brother clearly having incurred expenditure of only the initial 25K.

For IHT purposes the brother who incurred the build cost of 30K has effectively made a gift of 15K.

[bd6759]

In the second scenario, why would the gift of £15K to brother B be an allowable cost? Clearly brother B has used the gift to fund his share of the build, therefore the costs are equal.

There is only one computation of gain, which is then split between the owners