This sections focuses on some of the issues you may need to consider when buying a property either in your own name or with somebody else.
Buying a property in your sole name
The process of buying a property in your sole name should be fairly simple. It’s what to think about when you own the property that you need to think about.
1. What might happen if you find yourself in a position because you cannot pay your mortgage, say for example, you are made redundant, have an accident or receive a diagnosis of a serious illness. Speak to a financial adviser about the types of insurance that are available to you.
2. If you are single and the value of your property (including other assets you own) is over the threshold for Inheritance Tax (currently £325,000) after deducting your mortgage and any other debts, you may want to think of taking out insurance so that your beneficiaries aren’t left with a tax bill.
3. If you borrow money from a loved one to help with the deposit you should protect their loan in case you get into debt. This will avoid a potential creditor seeking to enforce their claim against your loved one’s loan.
3. Making a Will. If you die without making a Will your property or the net value of your property may not go to your intended beneficiary(ies).
4. Somebody who lives with you in the property could gain legal rights.
5. Making a Lasting Power of Attorney for property and finance. This means that if you have a temporary or permanent loss of capacity or get stranded abroad your attorney(s) can deal with your property issues such as buying and selling it.
Buying a property with somebody else
There is lots to think about if you are considering buying a property with somebody else. For example,
- Are you putting equal amounts in for the deposit? If not, you should have a record of who’s put what in which is legally recognisable in the event of a fall out.
- Are one or both of you borrowing or receiving a gift from a loved one towards the deposit. Again, there should be a record of what should happen to that loan/gift in the event of a fall out.
- How should you hold the property? The most common forms of property ownership are ‘joint tenants’ and ‘tenants in common’. As joint tenants (sometimes called ‘beneficial joint tenants’), you have equal rights to the whole property The property automatically goes to the other owner(s) if you die. You cannot pass on your ownership of the property in your Will without severing the joint tenancy. As tenants in common: you can own different shares of the property. The property does not automatically go to the other owner(s) if you die. Your share will pass to your estate, so if you haven’t made a Will then under the Rules of Intestacy it may not go to who you want it to. Therefore, we recommend that you make a Will. Tenants in common can sell their share of the property to anyone. There are no rules that prevent certain sales.
A lot of our elderly clients are worried that their property can be used in the assessment of care home fees and they tell us that somebody’s told them they should either put their property into a trust (which effectively means you are giving up ownership of your property) or they should transfer ownership of the property to their children. However, it’s not that straight forward..
Things you ought to think about when gifting or putting your property in trust:
- If you had to move into a care home but don’t have the resources to pay for the care yourselves, the local authority may only pay for the basic level of care, leaving you to rely upon the financial support of your family to enable you to move into a home of your choice.
- If you transfer part ownership of your property, you may be deprived of opportunities to adapt to changing circumstances, for example, by downsizing or releasing equity to pay for adaptations or care at home, meaning you could be left in a situation where you have no option but to move into a care home.
- The local authority might see this transfer as an intentional deprivation of asset if it could be shown that the main reason for doing it was to avoid/reduce the ability to pay care home fees. They would be likely to take into account the full value of the property in their means test used to assess the amount of care home fees you would be liable for paying, regardless of whether you owned half or not.
- It may expose you to risks should the people you are gifting/transferring ownership to become a bankrupt, as the trustee in bankruptcy could have a claim on the property, and in the event of a divorce, the divorcing spouse may be entitled to a share of the property as part of any financial settlement.
- There will be no IHT benefit in transferring a share in the property because you will remain living there and thus it would be classed as a gift with a reservation.
Transfer of Equity
A transfer of equity is when one or more owner(s) of a property wants to add one or more people to the legal register of the property or may want to remove one or more people other than themselves from this register. The process of transferring equity can be incredibly simple as long as everyone involved knows the terms and conditions and they are clear. Transfer of equity can have an impact on stamp duty, Capital Gains Tax and land tax, and matters are often accompanied by a re-mortgage too. If you have a mortgage, you must inform the lender if the names on the deeds are changing. You cannot change a name on the mortgage without changing the deeds and vice versa.
In our experience, there are a number of reasons why a transfer of equity in a property takes place. The most common are when couples get married or divorced or they want money to spend as they get older. Advice may be appropriate to ensure that any agreement is fully understood, is appropriate and legally binding.
As you enter ‘later life’, you may find you need additional sources of income. One solution may be to release some money from the value of your home, while continuing to live there. This is known as equity release. This is a major decision, so should never be taken without independent, professional help.
The Benefits of Equity Release :
- It gives you money to spend now, rather than leaving it locked in your property
- It could help pay for care costs without the need to sell your property
- It could enable you to help others now rather than waiting until you die.
- You will not be paid the full market value of your home
- It will reduce the amount of inheritance your beneficiaries could otherwise receive.
Equity release is a means of retaining use of a house or other object which has capital value, while also obtaining a lump sum or steady stream of income, using the value of the house. The ‘catch’ is that the income-provider must be repaid a later stage, usually when the home owner dies.