It is not uncommon for a parent to leave their home in their Will to a number of their children – and sometimes one child will want to buy out the others rather than putting the property on the market.
In such circumstances, stamp duty is likely to be payable, calculated on the value of the share that is being bought.
Take for example a scenario where you are a sibling buying out two other siblings. If the home is worth £1.2million and the total value of your siblings’ shares is £800,000, you’d pay stamp duty on the £800,000 that you’ll have to pay them. This would be calculated as follows:
Up to £125,000 (0%): £0
Above £125,000 and up to £250,000 (2%): £2,500
Above £250,000 and up to £925,000 (5%): £27,500
If you already own another property and you don’t plan on using the inherited property to replace your main home, the second home rate would apply (adding 3% to each of the bands above). The resulting calculation would be:
Up to £125,000 (3%): £3,750
Above £125,000 and up to £250,000 (5%): £6,250
Above £250,000 and up to £925,000 (8%): £44,000
Capital gains tax may also be payable on the transaction, but the co-inheritees who are selling their shares would be responsible for this. To work out how much tax would be due, it is necessary to compare the value of the property when the parent who gifted it died with the value of the property now. Tax would be payable on the gain made on the portion being sold only. So, for example, if your siblings’ shares were worth £700,000 at the time of death compared to £800,000 now, the gain would be £100,000, less the cost of any allowable expenses and improvements. To finalise the calculation of tax due, it would also be necessary to take into account the siblings’ income as this affects the rate of tax they will have to pay – 18% or 28%.
If you are considering buying out a co-owner of a property, we recommend speaking to a solicitor first who can advise on the tax implications and any allowances available. Our property team would be pleased to advise – call Southport 01704 532890 or Liverpool 0151 928 6544 to find out more.