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

You'll be paying tax at 40% on the income from the rent you receive from the brother as it's classed as unearned income.

@chocolateorangeinhaler where did you get that Pearl of wisdom from ??? No she won't. Well, not unless the rest of her income takes her into 40%, which it doesn't sound like she's anything close to that level. Honestly, if you don't know the right answer you really shouldn't comment. OP is stressed enough already without you spouting complete rubbish.

I might be confused but it seems to me that they are just giving you some money to compensate for being able to live free in DF's old house.
Why don't they just put the money (their share towards your rent) in a separate account for you as a gift to their sis.
The only thing that needs sorted imv is ensuring your 1/3rd share of the house is maintained into the future. Maybe a brother will marry or one will move out or whatever . Check that all is clear with the solicitor as your DCs might need the share (your share) in the distant future.

@chocolateorangeinhaler you are wrong. Income from property is treated like income from any other source and is taxed at the the recipients marginal rate. Maybe ask for your post to be deleted

No apology needed @Viviennemary it's just all very emotional for me still.

@MamsellMarie I think that is exactly what my dads thinking was cos I'm sure at one point he said to my brother for him to just open another account in his name, transfer my money into it each month and give me the card for the account.

Must also add that it's already agreed that if in the future anyone wants to sell then that's what happens.

Sorry one more question. When they pay me will i have to set up a separate bank account for it or can it just go into my normal account ?

Do you need the money they’ll be paying you each month for rent? What May be better (if you trust each other) is for them to pay it into a seperate savings account in their own name so it’s ringfenced so to speak. In the Future it could then be used to fund “your share” of repairs or at some point in the future when your financial circumstances change somit won’t effect benefits they could start paying you over some of the money. You couldn’t have anything formally written re rent etc though so it would very much be based on trust and lots of potential to go wrong from your point of view if db’s decided they were going to keep the money

@TheOriginalNutty it can be paid into your own account. People are making things super complicated on here ! Get an agent to value the rental value, agree a rent with your brothers. You receive 1/3 from them. Yes you'll need to declare it and pay tax on it but you can do it yourself on line. For what's involved at your end it's an easy job. A good mortgage broker might be able to get them a mortgage to buy out your share if that's what you'd prefer. You wouldn't pay tax on the lump sum, only on any investment income you derive from the lump sum.

Actually the tax treatment of income from rental property is not completely straight forward as there are various deductions you can make from the income before it is taxed. Worth getting an accountant to do it

@TheOriginalNutty

Sorry one more question. When they pay me will i have to set up a separate bank account for it or can it just go into my normal account ?

It can go into your account.

Look - if you were a ‘proper’ landlord with contracts and tenants and everything that goes along with that then it would definitely be best to understand tax deductible allowances etc etc.

But you’re just co-owner of a proportion of a relative’s house. If you trust your brothers, have sensible communication over repairs and an agreement on that and the solicitor has drawn the legal stuff up, there’s no need to worry. As things change with anyone’s living arrangements you can adjust then. You’re not talking a property empire or income that will be at the level it will tip you into needing to make any tax deductions. Just declare it on your self assessment tax return, which is very simple and you don’t need an accountant for.

I’m so sorry for your loss.

Right well if you want to just treat it as a gift you can do that too. Each person can give 3000 a year exempt from iht so you would be fine doing that. Both gift or rent can go into your normal bank account.

Be clear in your head though, if its a gift they are not paying you rent!!! Just incase you do ever get asked (which is extremely unlikely)

I'm assuming here from your post as you all trust each other there will be no paperwork, no rental agreements etc, so you can skip all the legal and landlord implications of this.

@chocolateorangeinhaler Can you show me where you got this figure of 40% tax rate on rental property as unearned income?

Op
Are you claiming any type of working benefit? U.C. Or housing benefit?

If this is the case and your brother gift you money or pay you rent from your share of the house - you would need to declare the money and part ownership of the house

Absolute nonsense that the tax rate on rents from property is 40%.

The easiest way to do this is to be gifted money by your brothers because rent would mean you were a landlord with a lot of legal burdens.
Obviously if your brothers don't gift you then you can't get the money but at that point you could sell if the agreement that you have states that.
I wouldn't go down the rent path because being a landlord is complicated and the tax returns for it are reasonably complicated due to deductibles.

OP, so sorry for the loss of your Dad.

Snd you seem like a lovely close family.

To me the arrangement sounds great!

You have secure HA housing, and you get a share of an (appreciating , i.e increasing in value) asset as well as an ongoing income.

If your brothers were to buy you out your cash would actually be decreasing in value (because savings rates are so low), you would likely spend it, and it would still affect your UC claim!

IMO you don’t need an accountant to handle the amount of rent you have coming in, the tax sell assessment form is quite straightforward and has lots of help guides to watch as you go.

If you ever sell the solicitor will handle the payment of Capital Gains Tax, and you only get taxed on some of the increase in value, you will still be ahead.

I think that as you are not contributing to wear and tear it is fair that you don’t pay towards ongoing maintenance of that kind, but what if a new roof was needed?

It is true that you get less benefit from the house than your brothers because they won’t be taxed on their capital gains, or the rent aspect, so again, maybe fair enough that they cover the costs.

I would just ask the solicitor what he was referring to when tax was mentioned.

But it all sounds very straightforward to me.

Being 40 off won’t stop them getting a mortgage. I’m hoping to get one soon to buy a house and I’m 45. I have over 20yrs left to work so I’ll probably get a 20yr mortgage which will mean higher payments but less interest overall. It’s worth your brother investigating this as that would probably be easier so you’re not liable for any maintenance costs etc. As you’re all close im sure it will work out ok anyway