Buying your first home with your partner is an exciting life event. It is a huge step in commitment not only from a financial perspective but also to each other. It is a happy time, it is a stressful time, where many aspects need to be considered. None of us likes to think about the inevitable, but unfortunately, it is something that needs to be thought about carefully when purchasing a property.
It is important that you have a very clear idea as to how you would like ownership of the property to operate. It is, therefore, important that you discuss the matter before you commit yourself to ensure fair results.
If your property is to be purchased by more than one person, how do each of you protect your interests?
When a property is owned by more than one person, they all have an interest in that property and are known as co-owners, whether they purchase the property as their home or an investment.
There will quite often have to be a combination of actions, not necessarily including marriage! A will is the obvious solution, but sometimes this has to be linked with a simple declaration of trust regarding the property which will confirm the shares each party owns.
What is a Declaration of Trust?
A Declaration of Trust is an agreement between two or more owners of a property as to how they will share the income or sale proceeds of a property, and how they have agreed to share the liabilities and expenses. It can also be used when one person is the legal owner but someone else has helped or will help financially and they want that contribution to be recognised.
What is the difference between Joint Tenants and Tenants in Common in the event of death?
Property can be owned by two or more people as joint tenants, where ownership passes to the surviving joint owner, or tenancy in common, where each party owns their own separate share.
A declaration of trust can specify unequal deposit contributions, or unequal contributions to mortgage payments, so that the person who has contributed the most can be protected. The declaration of trust shows what the two joint owners have agreed. If the property is an investment property, the rental income can be directed to the lowest taxpayer, if that is appropriate.
A declaration of trust will only work whilst both joint owners are alive. To make sure your wishes are followed after death you need to have a will. Unless there is a will the estate of the first to die will pass under the intestacy rules:
- Spouse or civil partner – (even in the event that one party may be living with someone else).
- Children or grandchildren
This means that the deceased’s share in a property may pass to his/her spouse, even though the partner may still be living there, or the married couple is separated and the person who died has been living with a new partner.
At what point should you make a Will?
The intestacy rules do not always do what people expect. They do not recognise life partners or step-children, and a surviving spouse or civil partner will not automatically inherit the entire estate. Everyone should have a will!
If you are unmarried and buying a property with your partner it is even more important. You can protect your share in the property in case of a breakdown in the relationship, but what happens if one of you were to die? Without a will, their estate will pass to their next of kin which will probably be their parents. You then have a situation where the bereaved partner owns the property with their late partner's parents, or brothers and sisters.
In a will, we can give your share in the property to your partner, or we can set out how long they can remain in the property if you do not want to make an outright gift - for their life or until they start another relationship for example. There are many options.
Are you clear on how you would like ownership of the property to operate?
If you are unclear as to how you would like to take ownership of your property and would like to speak with someone further about the content of this article and your personal options, our team are here to help, whatever stage you're at in buying a new house. Just contact the author below for more information, or submit an enquiry via our contact page.