A Guide to Wills when Buying a Home
Buying in your sole name
For many people, a house is the most expensive asset they will ever own and buying one, especially for the first time, can be a daunting and stressful experience. In addition to the long checklist of ‘things to do’, it is important to remember to draw up or update your will at this time.
Once you have purchased your property, you will want to make sure that it passes to the right beneficiaries when you die – that your loved ones benefit from your property and money – so it is important that your will allows for this. If it does not, you run the risk of your property passing under the intestacy provisions which may not be in accordance with your wishes.
Buying in joint names
When buying your property with someone else, you need to be careful that your ownership of the property coincides with what is in your will.
If you are buying your property jointly with one or more people, the property can be held in two ways in law. The first as joint tenants which means that when you die your share of the property will pass automatically to the survivor and falls outside the terms of your will. The other is as tenants in common which means that each of the owners of the property has a fixed share; when they die that share passes in accordance with the person’s will, rather than automatically over to the other owners of the property. This distinction is important when considering who will benefit under your will.
Second homes and tax
You may have to pay capital gains tax when you dispose of a second home. The tax that will be payable will be dependent on the amount of ‘gain’ you have acquired from the date the property was transferred to you to the date you either sell it or transfer it to someone else. This includes business premises, buy to let property, inherited property and land.
The gain may be subject to certain reliefs such as Private Residence Relief if the property was treated as your main home.
There may be a way to avoid or defer the tax payable by gifting your property into trust and you should, therefore, discuss your options with a member of the Private Client department.
Buying with parents/children
Problems can occur when there is more than one person who owns the property. It might be the case that a parent and child buy a property together and the child lives in it whilst the parent lives elsewhere. In this instance, it is important to draw up an agreement about responsibilities for outgoings on the property and how it will be divided on sale if unequal contributions have been made to the purchase price. Please ask to talk to someone from our team about a Declaration of Trust if this applies to you.
Selling to pay care fees
If you need to go into a Care Home in the future, and have savings of less than £23,250 but you have equity in your home, your Local Authority can set up a Deferred Payment Agreement which can mean that you do not need to sell your home in order to pay for fees. However, they may charge interest on this and other legal and administrative fees can apply.
In some cases, it is necessary to sell a property to pay for care fees; however, there is some planning that can be done in order to avoid this such as gifting your property into trust in your lifetime or through your will. If you think this might be something you would like to consider, please speak to a member of our team.
If you do wish to sell your home, our Investment Managers can help you make decisions about investing the equity.
Gifts of property
You may wish to enquire about making a gift of your property to someone else. There can be tax implications in doing this as well as a risk to the receiver of the gift. It is important for us to look at your circumstances to advise you if this would be in your best interests. It might be, for example, that you wish to gift your property to your child to avoid complications when you pass away. If so, we would need to assess the implications for your estate, and your child’s, as it can be the case that if you continue to benefit from a gift then it is treated as part of your estate for inheritance tax purposes, even if you are no longer named on the title deeds. Similarly, there might be capital gains tax payable on this if it is owned as a second home by your child.
Our specialists in tax, trusts and wills can advise you to help you protect your assets for the future and guide you regarding this important decision.
Buying a property can give rise to many situations that you might need help with, and the examples above are just a few of them. Please speak to a member of our team today to see how we can be of help.
For more information, or advice please speak to a member of our Private Client Team.