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Where Taxpayers and Advisers Meet

CGT on transfer of rental property to brother

Adam Khan
Posts: 23
Joined: Mon Jan 30, 2012 11:19 pm

CGT on transfer of rental property to brother

Postby Adam Khan » Sun May 31, 2015 4:04 pm

Hi,

Back in 2006 my father wanted to help my brother purchase a buy to let property. My father and brother had the deposit but when my brother applied for a mortgage he got refused.

So my father asked me if it was ok for the property to go under my name. I agreed it was ok and signed the paperwork.

Since then the property has been rented and the rental income has been going into my bank account and the mortgage has been going from my account. The tax payments have also been made from my account.

In the meantime my brother has been making part repayments to the mortgage over the years and been reducing it.

The house was purchased for £283k, and has a mortgage of £100k remaining. It is now worth £500k.

I would now like all my financial affairs in correct order and nice and tidy. As the house was never mine I would like to transfer it to my brother.

Please can anyone let me know what the CGT implications of this are?


Thanks
Adam

Peter D
Posts: 10668
Joined: Wed Aug 06, 2008 3:37 pm

Re: CGT on transfer of rental property to brother

Postby Peter D » Sun May 31, 2015 5:07 pm

So you appear to be the owner of the property. I assume you have been deducting the interest payments form the gross rental income. Your brother appears to have made some mortgage payments I assume via your account.
On the surface of this your brother has no beneficial interest in the property. Is there a Trust involved or and written agreement anywhere. Regards Peter

Peter D
Posts: 10668
Joined: Wed Aug 06, 2008 3:37 pm

Re: CGT on transfer of rental property to brother

Postby Peter D » Sun May 31, 2015 5:16 pm

"As the house was never mine" this worries me. Who else owned it. It was in your name. the income and tax was dealt with via you account and you paid the mortgage.
With the facts as presented you would have a CGT liability of circa £57,652 assuming you are a higher rate tax payer.
What if you brother going to get out of this arrangement. ?
Regards Peter

Adam Khan
Posts: 23
Joined: Mon Jan 30, 2012 11:19 pm

Re: CGT on transfer of rental property to brother

Postby Adam Khan » Sun May 31, 2015 5:25 pm

Thanks for the quick response Peter

Yes, I am the legal owner of the property.
Yes, interest payments have been deducted from the gross rental income.
My brother has made part repayments approx. £100k from his own bank account.
Mortgage payments have all been made from my bank account.
There is no trust involved or a legal agreement, just a verbal agreement between my brother and I.
When I stated the house was never mine, I meant that it was just purchased under my name. It has always remained under my name since purchase. I just meant I never saw it as mine based on my agreement with my brother.
Would the CGT liability (assume no expenses and higher rate tax payer) be £500k (current value) - £283k (purchase price) = £217k x 28% = £60.76k
I was hoping there would be no CGT as I was never the "real" owner my brother was. I had always agreed with my brother I would sign the property back over to him as soon as it was possible as the property was really his.

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Re: CGT on transfer of rental property to brother

Postby King_Maker » Sun May 31, 2015 6:22 pm

I assume the Rental Profits/Losses has been included in your Tax Returns for the relevant years?

Adam Khan
Posts: 23
Joined: Mon Jan 30, 2012 11:19 pm

Re: CGT on transfer of rental property to brother

Postby Adam Khan » Sun May 31, 2015 6:40 pm

Yes, all rental profits/losses have been included in my tax return.

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Re: CGT on transfer of rental property to brother

Postby King_Maker » Sun May 31, 2015 9:43 pm

Yes, all rental profits/losses have been included in my tax return.
Why, if it's meant to be your brother's income?

Does he pay Income tax at same rate as you? If so, and even though there is no overall loss of tax to HMRC, your Tax Returns may be incorrectly completed. You may need some supporting evidence to avoid interest and penalties.

Did you have an accountant to do the Rental accounts and/or Tax Returns?

Adam Khan
Posts: 23
Joined: Mon Jan 30, 2012 11:19 pm

Re: CGT on transfer of rental property to brother

Postby Adam Khan » Sun May 31, 2015 10:19 pm

I believed it would be more straightforward for me to put the numbers on my tax return, as the rent was going into my bank account and the tax was paid from the rental income. It all sounds rather confusing now.

Quite simply brother buys house under my name and pays £50k deposit as he cannot get mortgage under his name.
House goes on rent, rental income goes into my bank account, this covers the mortgage and tax payments, all from my bank account. Nothing is left over in my bank account. Brother makes £100k part repayment for house.
So far brother has paid £150k for house. I have paid nothing!
Now I want to put the house under his name as that's what we agreed when purchased.
I was just going to transfer the house to his name as that is what I agreed with him.
I just want to make sure I am not doing anything wrong.

Peter D
Posts: 10668
Joined: Wed Aug 06, 2008 3:37 pm

Re: CGT on transfer of rental property to brother

Postby Peter D » Sun May 31, 2015 11:18 pm

How did you agree this ownership. ? Regards Peter

Adam Khan
Posts: 23
Joined: Mon Jan 30, 2012 11:19 pm

Re: CGT on transfer of rental property to brother

Postby Adam Khan » Mon Jun 01, 2015 6:49 am

It was a verbal agreement with my brother.


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