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.
I made my first Will eight years ago, when times were simpler. My only concern was who would receive my David Campese-signed World Cup Final program and Fender Telecaster. Since then I have married, own a property with my wife and have two young children. There are now three people more important than anything else. More important than a Fender.
I want to ensure that if anything should happen that my wife and children are provided for and protected. However, if an individual dies without leaving a Will the Intestacy Rules apply. These are far from ideal in many cases.
Under the Intestacy Rules, if you die leaving a spouse and children, the surviving spouse will receive the first £250,000 from your estate outright, with an additional sum of half of the remainder. The other half is left upon trust for your children to inherit at the age of 18. Meanwhile, if you are unmarried at the time of death, the intestacy rules do not provide anything at all for the surviving partner, and the entire estate would pass to your children.
In the event that both spouses die, their estates would pass entirely to their children, but again to inherit at the age of 18. I, for one, would not have been in a position to handle a significant inheritance at this age, particularly following a potentially traumatic event. Furthermore, the intestacy rules do not automatically appoint guardians for children where both parents die. This can result in messy inter-family litigation, and the children may ultimately end up in the care of individuals you would not have chosen.
When parents of young children ask for my advice regarding their Wills, there are three things I ask them to consider. First, is the appointment of guardians. Many will wish to appoint siblings or parents, though you can appoint anyone to act in this position. It is also worth ensuring that the Executors and Trustees of your estate have the power to release funds to assist with the financial burden of acting as guardian.
The next will be the appointment of Executors and Trustees. These are the individuals who administer the estate and control the funds until such time as your children ultimately inherit. Though these can be the same people as the guardians, it is worth considering independent individuals, to ensure there is some neutrality in the management of the funds.
Finally, there is the age at which the children are to inherit. You can impose a specific age, such as 21 or 25. However, I often advise parents to consider the flexibility provided by a Discretionary Trust. Under a Discretionary Trust your trustees will have the discretion to decide as and when the beneficiary is to receive part of their inheritance. For example, part may be used at the age of 18 for University fees, part towards the purchase of a house at 23, and the entire amount at a time when they are more financially responsible. The trustees may also make a loan to the beneficiary for the purchase of a property, to help protect the inheritance from divorce or bankruptcy.
I am aware that becoming a parent is a life changing and financially demanding experience. However, a properly drafted Will is something else to add to the list of travel systems, stair gates, sleep suits, moses baskets and baby monitors.
If you are an expectant parent (or grandparent) and wish to discuss this further then please contact myself, Will Vine, or a member of our team from your local Everys office.
This year, the High Court considered the case of Thompson v Thompson  EWHC 1338 (Ch), a case involving a son who claimed he was promised all his life by his parents that he would inherit the family farm on their death.
The Claimant was one of five siblings but his parent’s only son. He claimed that he had dedicated his life to working and living on the farm on the back of promises from his parents that he would inherit it all when they died. As such, he claimed he had acted to his detriment, giving up the possibility of having any independence – something which his sisters had gained – accepting low wages, not pursuing qualifications or purchasing his own property.
The Claimant’s mother survived her husband, denied making such promises and wished to distribute the farm amongst all of the children. The son claimed he should receive the entire farm.
The Court found in favour of the son. It accepted that (1) the farm had been promised to him, (2) that he had reasonably relied on that promise, (3) that he had acted to his detriment because of it and (4) that it would be unconscionable to deny him the farm – a principle known as ‘Proprietary Estoppel’. To remedy this, the Court ordered that the son would receive the farm on his mother’s death.
The ruling overrides any Will made by his mother and also overrides the default intestacy rules (the rules applied if a person dies without a making a valid Will) that would have seen her estate divided equally between the five children.
This decision emphasises the importance of estate planning and the need to consider how you would like your assets divided on your death.
If you have any queries about estate planning or require advice, contact your local Everys office.