Q My father died in March this year leaving equal shares in a house to me, my brother and my sister. The house has been valued at £155,000 and is currently rented out to tenants whose lease expires next March.
My brother has expressed interest in buying my sister and me out to use it as a rental property but says he would expect to do so at a reduced cost as the value of the house, he claims, is significantly reduced by having tenants in it. This seems unfair as his intention, anyway, is to continue to let it out to boost his own income.
Now that probate is almost completed, he has also asked me to open a bank account in my name for the rent from the current tenants to be paid into while we reach a decision as to how to proceed. But what are the tax implications? I pay very little tax as I’m retired and on a pension of £12,000 a year. LM
A I suspect that your brother is asking you to open a bank account in your sole name because he believes that the rental income will be treated as yours alone for tax purposes. If that is the case, he is mistaken. He will be liable to income tax on his third share of the rent wherever it is paid, as is your sister. So I suggest that the three of you open a joint account and have the rent paid into that. You should each tell your tax office about the extra untaxed income you will be receiving so that your tax code can be altered to collect the extra tax due.
As for buying you and your sister out at a reduced price because of the “sitting” tenants, your brother is mistaken about that as well. The tenants are not sitting tenants as their lease expires next March. Under the Rent Act 1977, sitting tenants – also known as protected, regulated or rent-act tenants – have the right to remain in the property they rent for their lifetime – a right that can also be inherited by a spouse or other family member. Sitting tenants also have the right to pay a “fair rent” – determined by the Valuation Office – which is typically well below market value. How much rent can be increased by is also limited. Because of these legal protections for sitting tenants, properties rented by them typically go for a lot less than market value.
However, as you already know, the tenants in your shared property are not sitting tenants so it is not fair of your brother to expect to pay less than market value for your and your sister’s shares of the house. If he does buy you out before next March, he also has the advantage of having tenants in place who may well want to carry on renting the property and so would be interested in renewing their lease beyond March.
Muddled about mortgages? Concerned about conveyancing? Email your homebuying and borrowing worries to Virginia Wallis at virginia.wallis.freelance@theguardian.com
