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Original poster

Paying tax on a property I won't be living in

68 replies

TheOriginalNutty · 28/10/2021 11:21

My dad passed away in June and his house was left to myself and my brothers.

Elder brother was already on the house deeds as he had lived there with my dad forever and paid into the house. He was left a 40% share.

Myself and my younger brother have a 30% share, well we will.

The situation is that my brothers are going to live there, I'm not. They aren't buying me out, my rent will be split into three and we'll all pay a third if that makes sense. I will keep my share in the house so if it's ever sold I get my 30% or in the event of my death it passes to my kids.

Anyway when we're at the solicitors he very briefly said something about me having to pay tax on my share because I'm not living in the house. I didn't ask about it at the time because I was still in shock at my dads passing tbh.

I have no idea what he means. Could anyone in the know explain this to me ?

Thank you

OP posts:
Original poster
TheOriginalNutty · 28/10/2021 11:24

Meant to add that even if I had my share in a lump sum I couldn't buy a property or even use as a deposit as i can't get a mortgage, hence us doing it this way.

OP posts:
hedgehogger1 · 28/10/2021 11:31

Would you be liable for inherence tax? Plus then ongoing council tax?

Original poster
TheOriginalNutty · 28/10/2021 11:34

I have no idea tbh. My brothers will be paying council tax on the house as tbey will be living in it.

OP posts:
DeliaDinglehopper · 28/10/2021 11:39

When you sell it, you’ll probably be liable for capital gains tax.

Original poster
TheOriginalNutty · 28/10/2021 11:40

We aren't selling it though

OP posts:
AdaColeman · 28/10/2021 11:40

So your brothers are going to be living in a house which you own a 30% share of.
Is the rent that you mention what they are going to pay you?

That might be what the solicitor was talking about, income tax on the rental income, but that would depend on your personal tax situation.

Perhaps you should ask the solicitor what he meant.

Are you going to be paying a portion towards the upkeep/maintenance of the house?

It all sounds a bit disadvantageous to you. Are you sure you’ve got the best deal for yourself from your brothers?

Original poster
TheOriginalNutty · 28/10/2021 11:49

Yes that's right I will get income from them monthly.

I won't be paying upkeep no, which I was confused about when this arrangement was first mentioned because that didn't seem fair but then they have very low outgoings now so that's what my dad said to do.

This all came about because no one including me wanted my older brother to have to move out of the house. Younger brother was renting a small flat before and so was happy to move into the house with my brother.

I'm historically rubbish with money and so it seemed like the best arrangement tbh.

I am now worrying a little that this isn't financially in my best interest now BUT I won't see my brother have to move out of the house so I don't know 🤷🏻‍♀️

It's all so confusing to me tbh.

OP posts:
Theunamedcat · 28/10/2021 11:51

Why will the rent be split in three? Surely they should be paying you a third of the market rate for rent

Why don't they buy you out?

Original poster
TheOriginalNutty · 28/10/2021 11:55

We will be paying a third each of my total rent. My rent is low as the house is owned by a housing association.

WRT buying me out I'm not sure if they'd get a mortgage.

Eldest brother is 47, works full time as a postie and has excellent credit and a low amount of savings.
Younger brother is 41, full time self employed with debt and not very good credit rating.

House hasn't been valued and it does need work but we think it's around £200,000 maybe slightly less.

OP posts:
wobbleinprogress · 28/10/2021 12:01

You would be liable for income tax on the rent and capital gains tax on the sale proceeds if and when you sell. Your solicitor should really be explaining this, so ask them again to clarify.

Original poster
TheOriginalNutty · 28/10/2021 12:05

Ah ok, thank you.

How do I work out what I'll be taxed on the rent they give me ?

OP posts:
Original poster
TheOriginalNutty · 28/10/2021 12:08

Yearly rental income then would be £4320

I work full time and earn roughly £21300

God I wish I was good at this type of thing

OP posts:
AdaColeman · 28/10/2021 12:37

So, your brothers are paying you two thirds of a low housing authority rent?
But you won’t be contributing to any of the main house maintenance costs? Is that right?

cuttlefishgame · 28/10/2021 12:39

You don't need a solicitor to advise you on this, you need an accountant.

Gladioli23 · 28/10/2021 12:51

So are you charging your brothers rent for your 1/3 of the house, that totals 2/3 of your housing association rent (because you don't want to move in there?).

So you'll have income of £4 per year, except it will actually be 20% less than that because of tax?

I think I would be worried about the legal responsibility of being a landlord (gas safety, EPC etc) and then the tax repercussions.

I would wonder if it would be possible for your brothers just to give you a regular gift instead but with no ongoing obligation to pay. I don't know where that sits on the tax.avoidance (legal) Vs tax evasion (sensible) front.

Then separately you'll be building up capital gains tax costs which will have to be paid when the building is sold.

If it's currently worth 200k, then you'd pay CGT only on any gain on that. So e.g. if in 10 years it sold for £300k you'd own 30% of it, so it would be a gain of £30k. The first 12k of gain is tax free (currently - this may change) and private residences are charged at 28% CGT for basic rate payers, so you'd have about 30% of 18k to pay so around £5.4k of tax on a £30k gain. You currently have to pay this tax within 60 days of sale (rather than at the end of the tax year).

If you live in the house you get principle private residence relief, and if you then rent out the house once you've moved out (though then there are the landlord issues) you can also get lettings relief.

Essentially it's all quite complicated...

Isabellabasil · 28/10/2021 12:55

I don't understand, is it owned by you three or by the housing association?

amillionrosepetals · 28/10/2021 13:03

Your brothers are living in a house you own 30% of so they should only be paying you rent for that 30% i.e if the house would rent out for £750 a month they should be paying you £250 per month but you should then be paying 30% of any maintenance costs. Instead you have agreed that they will pay you £4320 rent and you pay nothing for maintenance. That's fine as long as you are all happy with this arrangement.
You will not have to pay any Council Tax - you do not live there.
Your tax liability on the rental income is:
Rent 4320

  • Property Allowance 1000
Taxable Income 3320 x 20% = £664 tax You will have to notify HMRC and complete a Self Assessment Return each year. You will have to pay Capital Gains Tax if the property is sold at a higher price than it's value when you inherited it. If you buy a home of your own whilst you still own the 1/3 share then you will have to pay additional Stamp Duty (3% of the value of the property) on the property you buy.
Viviennemary · 28/10/2021 13:04

When the house is eventually sold there may be cspital gains tax to pay on the difference between the value of the house now and its value at the time of sale. On your share as you don't live in it. There may also be tax to pay on the income you receive from the rent. Ask thd solicitor for clarification.

amillionrosepetals · 28/10/2021 13:05

Should also have said I personally would ask my brothers to buy me out if it was me.

Original poster
TheOriginalNutty · 28/10/2021 13:09

Sorry quick reply as I'm at work do have t read most recent replies properly.

My house I live in now is rented from a housing association. House with my brothers was my dads and will be owned by all of us.

I can't move into it, I have children and it's not big enough for us all.

I think my dad did it this way as he thought it would be more beneficial and avoid my brother maybe having to move out. I just wanted to do whatever was best to stop that happening.

Evidently it's more complicated than that.

Tbh I'm still all over the place regarding my dads death so this is just really stressful.

Thanks all for the posts so far

OP posts:
Viviennemary · 28/10/2021 13:19

This will most likely affect any benefits you receive.

NoSquirrels · 28/10/2021 13:24

I think you’re all complicating it.

The best way to do it, in my opinion, is to decide on a market rent for the house e.g. £600.

If you had tenants in, you’d each get £200.
Your brothers are living there, so they need to pay that £600. They can take off £200 each, leaving them to pay you £200pcm (£100 each ‘rent’ to you).

You pay 1/3 of all repair bills. You declare your re t (£2,400 a year) on your tax return.

VanCleefArpels · 28/10/2021 13:27

You need independent legal and financial advice to check this is in your interests or what possible liabilities you may unwittingly be taking on as a part owner of this property. The solicitor dealing with your dads estate will be able to help. A cleaner arrangement is that your brothers buy you out (with the help
Of a mortgage if necessary) and you realise your share.

Original poster
TheOriginalNutty · 28/10/2021 13:28

Vivienne - it will wipe out my UC claim yes, but tbh I would be losing that in July anyway as my youngest turns 18.

Honestly I could just cry cos my dad was trying to so hard to do this in the least complicating way bless him.

OP posts:
PennyRoyal · 28/10/2021 13:45

@NoSquirrels

I think you’re all complicating it.

The best way to do it, in my opinion, is to decide on a market rent for the house e.g. £600.

If you had tenants in, you’d each get £200.
Your brothers are living there, so they need to pay that £600. They can take off £200 each, leaving them to pay you £200pcm (£100 each ‘rent’ to you).

You pay 1/3 of all repair bills. You declare your re t (£2,400 a year) on your tax return.

I agree, best solution.