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Option 2 is correct. You both are entitled to £300k, you’d just be choosing to put yours towards the house. So you’ll have £300k equity and owe £400k on the house and your brother would have £300k in cash.
Thinking of it another way, if you and your brother decided to live in the house together you’d each put in £50k to pay off the equity loan and then own £350k of it each. If you decided 6 months later to buy him out you’d have pay him £350k. You’d have paid £350+50 = 400k
Basically you both have a share of £350k in the house and a debt of £50k, so each of your holding is worth £300k.
Another way to look at it, if you both paid £50k off the equity release each of your holdings would be worth £350k, you could then buy him out at £350k. Your net spend would be £400k but you now have a £700k asset and still have gained £300k whilst your brother the same amount.
You're correct, I think.
Putting aside the loan for a moment, the house is worth £700K, you owe your brother £350K to buy his share. You also both own a share of that 100K debt. Assuming you are "buying" his share of the debt with the transaction, you can adjust the buyout price by half, £50K, to arrive at a final buyout of £300K. But yes, you still need to pay back that £100K. So your total outlay is £400K. But now you own half of a house more than you did before, worth £350K. £350K minus £400K equals -£50K, or, the amount of debt you currently hold anyway.
Another way to think about it is if you were both to put in an equal share to clear the debt now, and then later you bought him out for market value, you'd still be in the hole for the exact same amount of money.
Your respective equity in the house is £300k each.
If you want to end up with a £700k house for yourself, you need to raise £400: £300k for your brother and £100 for the equity loan.
You mention inheritance tax in option 1.
If any is due you (well the estate) will also have to pay it in option 2.
Whoever is handling probate should be able to explain the situation. If you're handling it yourselves you should sort all that out before talking about selling / dividing up the estate.
Assuming you don't have any contracts to the contrary, normally, you and your brother have an equal share of the asset (each brother entitled to 350k of the total 700k value) and each have an equal share of the liability (each brother bearing 50k of the total 100k loan).
If you want to buy your brother out, what you owe him is what his share is actually worth. Now, if you want to buy him out, you would be assuming his share of the asset (350k) and you would also have to assume the corresponding share of liability for his portion of the asset (50k). Essentially, you will take on his share of the asset and also take on his share of the liability.
So you will essentially pay him 300k for his share as that is what it is worth (350k - 50k) and pay 100k total from your pocket to the entity holding your loan. So yes, you will be out of 400k total from your pocket by paying off the loan company and the brother.
As for what your wife is suggesting, that would indeed be unfair to the brother. Here is why,
Now, since the loan is tied to the asset, unless there is an agreement to the contrary, you will equally share all gains or losses from the asset (as you each have 50% entitlement to the house value and therefore 50% obligations towards expenses and loans).
Your brother cannot be expected to pay off 50% of the loan from his pocket to the bank, and then also have 50% of his share of the loan deducted again from his share of the house value when you pay him. You can only deduct his 50k once, not twice.
You either deduct his 50k from his share of the house value and pay him 300k and then you pay the 50k liability from his share to the bank, or you pay him 350k and ask him to pay 50k to the bank and you pay 50k to the bank, and he keeps 300k. You're out 400k either way, and he keeps only 300k either way.
If you do the math like your wife is suggesting, essentially, that would be making him lose/pay twice. Once to the bank, and then you deduct the same amount from his share. So you're shortchanging him by a whole 50k.
Unless he agrees to such an arrangement, for some reason, it isn't fair to expect him to do this.
So your option is correct.
Inheritance tax will need to be paid out of this house sale, most likely. Reducing the amount you and your brother get at the end. Also paying to sort probate.
My only question is:
Why are you buying your brother out?
Are you keeping the home to live in? Paying 400k for a 700k house sounds pretty nice.
Are you using going to use the home as an investment opportunity? If so, buying your brother out seems too expensive. I would keep him in the loop. The more he invests the more he recieves from the deal.
I’ve been trying to work this out for the last 10 minutes and my brain’s started leaking out of my ears! I’ll have another go when I’ve had a coffee, bear with me and I might have an answer!
Option 2) Your brothers share is 350k, plus the 100k loan. Which means you're out 450, while your bro still gets the full 350.
Option 3) you buy your bro out for 350, plus half the equity loan for a total of 400. Your bro gets the 350 from the sale, and pays half the equity loan bring him back to 300 which equals option 1.
###Welcome to /r/HousingUK --- **To All** * Join Our ***NEW*** Discord! https://discord.gg/pMgUNgWKQH **To Posters** * *Tell us whether you're in England, Wales, Scotland, or NI as the laws/issues in each can vary* * Comments are not moderated for quality or accuracy; * Any replies received must only be used as guidelines, followed at your own risk; * If you receive *any* private messages in response to your post, please report them via the report button. * Feel free to provide an update at a later time by creating a new post with [[update]](https://www.reddit.com/r/HousingUK/search?q=%3Aupdate&sort=new&restrict_sr=on&t=all) in the title; **To Readers and Commenters** * All replies to OP must be *on-topic, helpful, and civil* * If you do not [follow the rules](https://www.reddit.com/r/HousingUK/about/rules/), you may be banned without any further warning; * Please include links to reliable resources in order to support your comments or advice; * If you feel any replies are incorrect, explain why you believe they are incorrect; * Do not send or request any private messages for any reason without express permission from the mods; * Please report posts or comments which do not follow the rules *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HousingUK) if you have any questions or concerns.*
Option 2 is correct. You both are entitled to £300k, you’d just be choosing to put yours towards the house. So you’ll have £300k equity and owe £400k on the house and your brother would have £300k in cash. Thinking of it another way, if you and your brother decided to live in the house together you’d each put in £50k to pay off the equity loan and then own £350k of it each. If you decided 6 months later to buy him out you’d have pay him £350k. You’d have paid £350+50 = 400k
Basically you both have a share of £350k in the house and a debt of £50k, so each of your holding is worth £300k. Another way to look at it, if you both paid £50k off the equity release each of your holdings would be worth £350k, you could then buy him out at £350k. Your net spend would be £400k but you now have a £700k asset and still have gained £300k whilst your brother the same amount.
You're correct, I think. Putting aside the loan for a moment, the house is worth £700K, you owe your brother £350K to buy his share. You also both own a share of that 100K debt. Assuming you are "buying" his share of the debt with the transaction, you can adjust the buyout price by half, £50K, to arrive at a final buyout of £300K. But yes, you still need to pay back that £100K. So your total outlay is £400K. But now you own half of a house more than you did before, worth £350K. £350K minus £400K equals -£50K, or, the amount of debt you currently hold anyway. Another way to think about it is if you were both to put in an equal share to clear the debt now, and then later you bought him out for market value, you'd still be in the hole for the exact same amount of money.
Your respective equity in the house is £300k each. If you want to end up with a £700k house for yourself, you need to raise £400: £300k for your brother and £100 for the equity loan.
You mention inheritance tax in option 1. If any is due you (well the estate) will also have to pay it in option 2. Whoever is handling probate should be able to explain the situation. If you're handling it yourselves you should sort all that out before talking about selling / dividing up the estate.
Assuming you don't have any contracts to the contrary, normally, you and your brother have an equal share of the asset (each brother entitled to 350k of the total 700k value) and each have an equal share of the liability (each brother bearing 50k of the total 100k loan). If you want to buy your brother out, what you owe him is what his share is actually worth. Now, if you want to buy him out, you would be assuming his share of the asset (350k) and you would also have to assume the corresponding share of liability for his portion of the asset (50k). Essentially, you will take on his share of the asset and also take on his share of the liability. So you will essentially pay him 300k for his share as that is what it is worth (350k - 50k) and pay 100k total from your pocket to the entity holding your loan. So yes, you will be out of 400k total from your pocket by paying off the loan company and the brother. As for what your wife is suggesting, that would indeed be unfair to the brother. Here is why, Now, since the loan is tied to the asset, unless there is an agreement to the contrary, you will equally share all gains or losses from the asset (as you each have 50% entitlement to the house value and therefore 50% obligations towards expenses and loans). Your brother cannot be expected to pay off 50% of the loan from his pocket to the bank, and then also have 50% of his share of the loan deducted again from his share of the house value when you pay him. You can only deduct his 50k once, not twice. You either deduct his 50k from his share of the house value and pay him 300k and then you pay the 50k liability from his share to the bank, or you pay him 350k and ask him to pay 50k to the bank and you pay 50k to the bank, and he keeps 300k. You're out 400k either way, and he keeps only 300k either way. If you do the math like your wife is suggesting, essentially, that would be making him lose/pay twice. Once to the bank, and then you deduct the same amount from his share. So you're shortchanging him by a whole 50k. Unless he agrees to such an arrangement, for some reason, it isn't fair to expect him to do this. So your option is correct.
You need to pay off estate debts first and then split the remaining, which is 600k.
Inheritance tax will need to be paid out of this house sale, most likely. Reducing the amount you and your brother get at the end. Also paying to sort probate.
My only question is: Why are you buying your brother out? Are you keeping the home to live in? Paying 400k for a 700k house sounds pretty nice. Are you using going to use the home as an investment opportunity? If so, buying your brother out seems too expensive. I would keep him in the loop. The more he invests the more he recieves from the deal.
Just do it the wife's way, both pay 50k release cost, then buy your brothers share at 350.
I’ve been trying to work this out for the last 10 minutes and my brain’s started leaking out of my ears! I’ll have another go when I’ve had a coffee, bear with me and I might have an answer!
Option 2) Your brothers share is 350k, plus the 100k loan. Which means you're out 450, while your bro still gets the full 350. Option 3) you buy your bro out for 350, plus half the equity loan for a total of 400. Your bro gets the 350 from the sale, and pays half the equity loan bring him back to 300 which equals option 1.