You mention maintenance costs of £100,000. What exactly do you mean by "maintenance"? Do you mean repairs or improvements?
I'm afraid "expenses" doesn't tell me what I need to know. Everyday repair and maintenance costs such as plumbing or electrical repairs or redecoration would have been deductible from the rental income for income tax purposes in each tax year since 1988 and cannot be added to the cost of the property. Improvement costs which can be added to the cost of the property for CGT purposes would be for such things as an extension, the installation of central heating in a house which didn't previously have it or the addition of a conservatory for example, ie things which would enhance the value of the property.
Assuming that the £100,000 is improvements costs, then the overall cost is £177,000. Your parents are, therefore, sitting on a gain of £823,000, £411,500 each. If they gave you and your brother half the property, they would each make a gain of £205,750. The first £11,100 of that would be tax free leaving them each with a net taxable gain of £194,650.
There are two rates of CGT on property, 18% and 28%. The rate or combination of rates that they would each pay would be dependent on the level of their respective incomes in the tax year they make the gift. In the current tax year, 2016/17, a maximum of £32,000 of their respective gains can be taxed at 18% but that figure (£32,000) will be reduced by £1 for every £1 of income they each have in excess of £11,000. Therefore, the CGT liability for each of them will be somewhere between £51,302 (£32,000 @ 18% + £162,650 @ 28%) and £54,502 (£194,650 @ 28%).
The gift of half the property to you and your brother will be a potentially exempt transfer by each of your parents of £250,000 each for Inheritance Tax purposes. So long as they live for seven years after making their respective gifts, the value of those gifts will fall out of their respective estates for IHT purposes, saving 40% in IHT. As you will see here, after three years, the potential IHT charge would start to taper away.
I hope this helps but let me know if you have any further questions.
Leave this with me while I do some calculations.
If your parents give you and your brother half the property, they would each make a gain of £224,500 (£250,000 - £25,500). The first £11,100 of that would be tax free leaving them each with a net taxable gain of £213,400.
Assuming a gift halfway through the current tax year, your father's income will be £18,426 (£10,620 + £7,806). The first £11,000 will be tax free so he will pay income tax at 20% on £7,426 at 20%. His CGT liability will be £57,294.60 (£24,574 @ 18% + £188,826 @ 28%). Your mother's income will be £13,179. The first £11,000 will be tax free so he will pay income tax at 20% on £2,179 at 20%. Her CGT liability will be £56,769.90 (£29,821 @ 18% + £183,579 @ 28%).
None of the CGT would be repaid if your parents die before the seven year period is completed.
You could investigate the possibility of term assurance policies which have reducing cover as the IHT liability starts to taper away after three years but, given their ages, that would be expensive.
Trusts are not as tax efficient as they used to be and as for employee trusts I don't know enough about them. Frankly, given the amount of money at stake, its not something I could really get involved in here and has gone beyond the scope of the original question in any event. You really ought to consult an independent financial adviser in conjunction with a tax planner to see if there are any routes you can take. What I can tell you is when it comes to residential property, they aren't seen by government as proper businesses as a business that makes widgets is and, therefore, it won't be easy to make the IHT vanish. Even lifetime gifts into trusts can give rise to a lifetime IHT liability at 20% on the excess over the nil rate band and then there are 10 year IHT charges and exit IHT charges.
Yes, you could do that.
The property would need to be revalued at the time of each partial gift to you and your brother.