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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15940
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Brother wants to buy myself and sister out of jointly owned

Resolved Question:

Brother wants to buy myself and sister out of jointly owned business. We were gifted this property 4 years ago by mother following death of our father. It was let out until June this year when brother took over.The original valuation (4 years ago)was approx £240,000. It will have increased in value as brother has done a total refurb. My sister and I have not contributed to refurb and are happy with1/3 of original valuation. Will we be liable for any costs/taxes etc. or is it a simple case of us signing deeds over and him giving us £80,000 each.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. You mention a "jointly owned business" then you mention a property. What exactly do you own a share of?
Customer: replied 1 year ago.
Sorry, it is a trading pub/restaurant with owners accomodation.
Expert:  TonyTax replied 1 year ago.
Thanks.
If I can just recap. Am I correct in assuming that the pub/restaurant was let to somebody who ran it as their own business from when you inherited it until June 2015 when your brother started to run it himself and that you and your sister have never had any involvement in running the business? Is the property owned by you all personally or by a limited company in which you each own shares?
Customer: replied 1 year ago.
Yes those details are correct. We own it jointly but are not a limited company.
Expert:  TonyTax replied 1 year ago.
Thanks.
Leave this with me while I draft my answer. It will take a while so please bear with me.
Expert:  TonyTax replied 1 year ago.
Hi.
As you and your sister are connected for tax purposes to your brother, any disposal by you and sister to him will be deemed to have taken place at the open market value of your respective shares in the property regardless of the agreement you may reach with your brother.
Unfortunately, as this property has only been held as an investment by the three of you, at least until June 2015 by your brother, there are no reliefs available to you and your sister other than the annual Capital Gains Tax exemption for the first £11,100 of gains you make in the current tax year.
Were you to be actively involved in running the business for at least a year up to the disposal, you could lodge a claim for entrepreneurs' relief which might restrict the CGT charge to 10% as opposed to one of or a combination of the regular rates of 18% or 28% depending on the level of your income. You can read about entrepreneurs' relief here:
https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet/hs275-entrepreneurs-relief-2015
I hope this clarifies your situation but let me know if you have any further questions.
Customer: replied 1 year ago.
Thank you but can you please just clarify-
does this mean my sister and I would be liable for CGT on £80,000 minus £11,100
Expert:  TonyTax replied 1 year ago.
Your cost for CGT purposes will be £80,000 (£240,000 / 3). Your deemed sale proceeds will be one-third of the value of the property now. The difference between those two figures will be the gain and you take £11,100 off that to arrive at your net taxable gain.
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Customer: replied 1 year ago.
thank you so much. this has made things much clearer.