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

[TheOriginalNutty]

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

It isn't a great arrangement from your point of view. Especially if repairs are needed in the future. I agree with VanCleef that they need to sort out a mortgage and buy you out. Could you then afford your own property instead of renting. But if your rent is very low it might not be worth buying.

So they're basically paying the rent for your current so that all you housing costs are reduced. They aren't paying you rent for your dads home but towards the rent of your current housing association house.

I can see why they've thought that would be fair if you're brothers now have much cheaper housing as result of being able able to live in the inherited house while keeping their own share of it, they benefit both now and when the house is sold. Whereas you can't benefit until it's sold.

I'd be careful about coming off/reducing universal credit for this arrangement if one of your brothers is bad with money and debt as you need that money to live on. If there's any chance at all that one month he might not have the money or loses his job and ends up on benefits himself, you'd be up shit creek.

It's sounds that it's not that your paying tax for home you don't live in, it's that you'll be paying tax on income your siblings are giving you for rent towards a home they don't live in.

I think that the best solution for you would be that they bought you out.

At the moment, it seems as though in the short term, the arrangement is to their advantage. But in the longer term you could benefit, especially if they keep the house in good repair, update it etc.

While all is amicable between you things will be fine. But it's the sort of arrangement that can quickly break down and cause family trauma.

What if the house needs major repairs, a new roof for instance? They may not be happy that you are not contributing to repairs, but will benefit at the sale.

I think that you're walking into an unneccesarily complicated financial setup with brothers whom don't have a good track record of managing money. Why you'd consent to being woven into their financial affairs is beyond me. What happens if any of you need benefits? It's clear that none of you have the legal, tax or financial knowledge to be doing this botch job of an arrangement, and i can only see stress and financial cost to the OP if she enters into such an arrangement. She clearly doesn't have any idea about the cap gains tax implications, never mind what happens if there's a big repair bill due and the brothers can't pay it.

who on earth suggested that the brothers pay her (small) housing association rent instead of a true market value of the dad's house's rental value is beyond me - clearly either out to scam her, or just no financial awareness of what's reasonable or fair.

OP, you need to extricate yourself from this strange situation ASAP, if only because, if you continue, this will become a major problem at some point (from some angle) - you might as well rip the plaster off now and be done with it.

the standard thing to do here is for your brothers to buy you out of your share. that's not neccesarily what suits you here, but you NEED to get proper financial advice where you can make an informed decision - stop listening to what your brothers think or what randoms on the internet say, and go and talk to a professional clearly stating what outcome you want (which seems to be: you want to ensure they have the house to live in, but don't want to end up liable for a huge tax or repair bill).

Is there any housing benefit claim involved here. Either by your brothers or you.If there is then that is certainly a problem.

Actually I think the solicitor probably means Inheritance Tax. This tax is reduced if a property is left to children. I've had a quick google search and can't find anything to say that the tax is affected by whether the children live in the property or not. You need to ask the solicitor to clarify the inheritance tax position. I'm sorry about the loss of your father.

Thanks again for all of the replies.

Can't remember who said what but I will try and answer some points.

Can I firstly say that myself and my brothers are very close and we were all very close to my dad. No one has suggested this arrangement to try and screw me over. This was decided about a year before my dad died and in fact it was mentioned to his solicitor at the time and he said it was a good idea !

Non of us are clued up on this type of thing and when the solicitor mentioned the tax at the last appointment it was a brief comment said as he was explaining a million other things and at the time it didn't really register.
The solicitor is currently dealing with myself and my younger brothers name being added to the deeds.

The idea was meant to be to give me a bit of extra money whilst also maintaining my share in the house and would mean eldest brother didn't have to move and younger brother could move in. I mentioned contributing towards the upkeep of the house at the time we all discussed it and everyone said well no because you'd not be living in the house so not contributing to wear and tear.

WRT benefits, neither brother claim any so no issue there. I claim UC which includes a housing element. I have already sought advice on that and know that regardless of my brothers paying me rent, the fact that I have a 30% share in the house will nil my claim.
My claim would be ending next June anyway as eldest turns will be 19 and finishing full time education.

Essentially what they would be paying me each month would make up for what I'm losing in UC.

As I said no one is trying to screw any one over we are just trying to navigate this as best we can. Non of us want to sell the house.

I have no idea if my brother/s could get a mortgage to buy me out as they are both in their 40's.

@amillionrosepetals

Actually I think the solicitor probably means Inheritance Tax. This tax is reduced if a property is left to children. I've had a quick google search and can't find anything to say that the tax is affected by whether the children live in the property or not. You need to ask the solicitor to clarify the inheritance tax position. I'm sorry about the loss of your father.

The only stipulaiton is left to a direct descendent (google residence Nil Rate Band)

Unless your father had a significant estate, and the home is worth a lot, then I doubt there will be IHT due, especially if your father has been married, he also then inherets your late mothers Nil Rate band and RNRB too.

Also be mindful, that if you are married, then your 30% share of the property will also be taken into consideration if any divorve proceedings take place.

I'm not married and no significant other.

My parents were divorced a million years ago and my dad bought my mom out.

I've spoken to my brothers briefly this evening and my elder brother suggested getting advice from a financial advisor, as so many of you also have, so that's what we're going to do.

Thank you all for the advice x

The solicitor is presumably dealing with your father's estate as part of probate services. Not servicing you as a client with financial and tax advice.

So it's not really within his area to advise whether something like this is a "good" idea or not, and I'm surprised any competent solicitor would offer such a view. It should have been heavily caveated that you need your own financial advisor to be advising you.

Which you're doing, op. Great.

But it's akin to me as a heart surgeon (for example) telling you that you should take up running for general weight loss. Sure, but a heart surgeon wouldn't think if you have dodgy knees or live beside the M25 and plan to run along it daily. If you get my comparison

Yeh I do get what you're saying SS.

I'm struggling massively with the loss of my dad and this is just really stressing me out.

So sorry about your loss. That must be tough.
You need proper advice from another solicitor, not the one dealing with all 3 of you.
I'm sure your dad wanted what was best for all of you, and that your brothers are lovely people.
However, tying yourself up legally/financially like this is not really in your interests. They could get a mortgage and pay you 1/3 of the current value.
If you continue with this arrangement then consider what would happen if one of your brothers got married, then divorced, he might lose part of the house. One of your brothers could become insolvent, could take out debt against the house etc etc.

I'm not sure if they could get a mortgage 💸 n their 40s and one with not the best credit 🤷🏻‍♀️

No idea where that flying money came from

It sounds as if this bequest was made with the best of intentions but lacks consideration of the financial implications for you.

Please get specialist advice from a financial advisor. It sounds like you can discuss this with your brothers and maybe come up with a better arrangement, if you can it might be possible to have a Deed of Variation drawn up. (Caveat - I’m not a lawyer and my knowledge of D of V is 20 years old). My understanding of a Deed of Variation is when the beneficiaries of a will ALL agree that a different variation of the will is agreeable to all of them. Must be done within 24 months of the death of the person whose will you are varying. That way you could keep the spirit of the will but in a way that is not so financially taxing to you.

Good luck.

Glad you are getting financial advice.
If your brothers were paying rent then you could end up with issues about formal contacts, legal responsibilities, all the regulations around renting.

If it isn't a formal rent contract then there is nothing to stop your brothers not paying you if their situations change.

Major works on the property can be set against CGT liability so if you do keep it make sure you have a record of those going forward.

I would look to get bought out by the others though.

People are making this too stressful for you. Op are you going to be purchasing a property at any point? If you are you need you brothers to buy you out due to additional stamp duty and other Complications. If not then its simple....you will be taxed 20% on the income you receive from your brothers.

This set up is fine, go with it for now and get through your dad's death. If you or your brothers decide it isn't working then you can change it later. It's not big stress now. You will need to do a self assessment tax form each year which you can set up online...search for it on hmrc and its self explanatory, but you won't need to submit one until January 2023 if you had no rental income before 5th April 2021 so this really isn't a problem for you to worry about right now.

I'm an accountant if that helps!

You can get mortgages that last up till age 70. It sounds like the amount would be very low vs their joint incomes.

I won't be buying a property no. Thank you so much morechoc. I've been in floods of tears over this tonight and you've really helped put my mind at ease x

If you are becoming a landlord you may need to register depending on your local authority area.
You also need to be aware of the legal duties of landlords which include gas certificates and electrical inspections.

@Morechocmorechoc

People are making this too stressful for you. Op are you going to be purchasing a property at any point? If you are you need you brothers to buy you out due to additional stamp duty and other Complications. If not then its simple....you will be taxed 20% on the income you receive from your brothers.

This set up is fine, go with it for now and get through your dad's death. If you or your brothers decide it isn't working then you can change it later. It's not big stress now. You will need to do a self assessment tax form each year which you can set up online...search for it on hmrc and its self explanatory, but you won't need to submit one until January 2023 if you had no rental income before 5th April 2021 so this really isn't a problem for you to worry about right now.

100% agree with this.

The set-up is fine. A self-assessment tax return is fine. Don’t stress yourself out.

You'vd given this a lot of thought. Sorry if I stressed you out but I was just pointing out the pitfalls that could arise but you seem to have it sorted out with your brothers. Now you've explained it I agree with Morechoc to give it a try for a couple of years and see how it goes.

You need an accountant

The rent you receive will be treated as taxable income - you just need to complete a self assessment tax return annually and declare it

When the property is eventually sold, you will have capital gains tax to pay on any profit that you make from the sale - value of sale less value when transferred to you (based on your %)