Q In 2005 I bought a flat with my brother. We had a small inheritance from our grandparents and we put this in equally. We both put time, effort and money into revamping it in the first two years.
In 2010 my brother got married and he and his wife bought a family home. She had made money on the sale of her flat so my brother didn’t need to ask me to sell at that time. This was partially a kindness as I could stay in the home that really worked for me, and it remained as an investment for him. Our agreement was simple: I didn’t have to sell as long as he didn’t have to pay a penny towards it from the day he moved out. I have covered the mortgage, insurances, maintenance and service charge for the past eight years. We didn’t put anything in writing, which was stupid in hindsight but we didn’t plan for the future.
Now, I have met someone I want to live with. The flat doesn’t suit our needs so it is time to sell up and take advantage of house prices in south-west London. I need to approach my brother with a plan of how we split the profit made on the flat. I want to be as fair as possible as I have a close relationship with him and he has a disabled child, who I want to benefit from the profit as it could enhance her life. But I have put every bit of money I have into that flat and it has taken the place of a pension or any savings (I am self-employed).
I am also aware that he will be penalised by capital gains tax as he owns another property, but that the profit on the years it was his primary residence would not be subject to this.
I would like to know my legal rights before I go in with my proposition. I feel that knowing what the likely outcome of that would be would help my calculations. I am unsure if I should seek advice from a property lawyer or an accountant or both. RC
A I don’t think you need to talk to an accountant but if you do sell the flat, your brother might want to in order to get help with working out the capital gains tax bill. It might be worth talking to a property lawyer but in the absence of anything in writing to say how the profits should be split, I’m pretty sure that they would tell you that the law would assume you’re entitled to half.
Given that your brother has paid nothing towards the flat since he moved out, I can see that you may feel that a straight 50/50 split isn’t totally fair, and since you have paid his half of the mortgage, you might be right. But your brother may feel that you taking on the whole monthly mortgage payment was the price you paid for being able to carry on living in the property. The alternative could have been for him to carry on paying his half of the mortgage but charge you rent on his half of the flat.
A lot depends on the type of mortgage you both have. If it’s interest-only – which it could well be given the date you bought the flat – none of the amount you borrowed will have been paid off when you come to sell so it seems reasonable for you and your brother to split the profits equally.
However, if you have a repayment mortgage, you may feel that you want to take account of the fact that you will have repaid some of the loan since your brother left. You might want to suggest to your brother that he gets half the proceeds after clearing the outstanding mortgage at the time of sale, less the amount of capital you have repaid alone. But whether your brother will think that’s a reasonable suggestion, only he can say.