Transferring your share or equity in a property may seem simple on paper – but it is often the simple transactions that can have the greatest consequences if the circumstances surrounding the transfer are not taken properly into consideration.
We will be covering three common scenarios upon which people usually enquire about when approaching us to deal with transferring their property.
1) Transferring property from parent’s name into children’s names
Perhaps you’re a parent who is looking to make life a little easier for yourself and your children by dealing with the paperwork surrounding property now. Perhaps you are thinking about your mother or your father’s future regarding care home fees and want to ensure that their property will not be taken into consideration or to mitigate inheritance tax.
The important thing to note in these situations is that the intention behind transferring the property is well established and that ultimately the decision is made by the parent, not the child. You will find quite frequently that solicitors will want to meet with the parents to ensure that they understand the full implications behind transferring their property.
Some may think that transferring your property is an easy way to mitigate inheritance tax. Gifting your property is a way of insuring that your entire estate may fall under the inheritance tax threshold, and if gifted to children, it is also possible to still claim part of their residence nil rate band. However, there are several hurdles to note that may actually end up being more of a detriment than a benefit.
If you die within the next seven years of gifting your property, it is possible, depending on the price of the property, that inheritance tax will still need to be paid on the gift made. The amount of inheritance tax will decrease after three years the gift has been made, but it is worth knowing that you haven’t fully escaped the tax man by simply transferring the property before it forms part of your estate.
If you continue to live in the property for free once it has been transferred, this is known as having the reservation of benefit. If this applies, the seven-year gift rule mentioned above will not apply and inheritance tax will still have to be paid as if the property was still a part of your estate. A way to avoid this problem would be to move out of the property or to pay a reasonable market rent to your children for living in the property.
Maybe you are not concerned about inheritance tax but instead you are worried about what may be included in your assets when being considered for care home fees. If you are giving away your property with the view of lowering your assets for the local council’s financial assessment, it is highly likely that they will view this as deprivation of assets.
If the local council finds that you transferred your property as a deliberate deprivation of assets, they will still include the value of your property towards the financial assessment.
But if you simply want to transfer your property to your children because it will make life easier for them, as long as you are aware of the implications named above, there is nothing fundamentally wrong with deciding to transfer the property. However, it is worth noting that your children may no longer be considered first time buyers, if applicable, and that they may also be liable to paying stamp duty land tax if the property exceeds £250,000.00.
There are a lot of areas to consider when thinking about transferring your property to your children and therefore it is highly recommended that you speak to a solicitor to deal with the above concerns, but also to a financial adviser to cover issues surrounding capital gains tax.
2) Adding a second name to your property
Maybe you and your partner want to take the next steps of putting the property into both of your names – congratulations!
There are a few things to take into consideration when moving through the conveyancing process.
Firstly – how do you want to hold the property? There are two ways that properties can be held, and each type will have implications that need to be considered.
Joint tenants is one way of holding a property. Consider your house as being one whole unit which you and your partner will hold – you will not be holding separate shares of your house. The biggest impact that holding a property as joint tenants is that in the event where one of you dies, the survivor will automatically become the sole owner of the property – this is regardless of how the property may be left in the will.
Tenants in common is the other type of joint ownership. The property in this case can be split into separate shares – this can be as 50/50 or even unequal, such as 70/30. Unlike the joint tenancy, the share of the property will be passed as according to the will. This is optimal for situations where one of you may have contributed more funds to the property than the other, as this can be reflected in the amount of the property that you hold.
Furthermore, adding an additional name to your property may have further paperwork to deal with if you have a mortgage. Lenders will have different requirements about adding a second party to the mortgage and it will always be beneficial to contact your lender to figure out what they need before arranging to instruct solicitors to deal with adding the name to the property.
3) Removing a name from your property
Unfortunately, sometimes things don’t work out and you have agreed to remove your name from your property, leaving it in your ex-partner’s sole name. Perhaps you have owned a property with your parents, and it is now time for you to leave the nest.
Confirming the circumstances of why the name is to be removed from the property is always necessary to discuss with your solicitor in case additional legal advice needs to be recommended or established – this is especially the case with family matters.
Regardless of the circumstances, solicitors will not be able to act for all parties in this case. This is because fundamentally you are on opposite sides of a financial transaction, which means that a solicitor is unable to have both of your best interests in mind.
In such situations, it will be necessary for both parties to have their own separate solicitors. In situations where you are in agreement about the circumstances, it may be possible to have one party represented by a solicitor and the other party unrepresented – but this is at their own risk.
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