Property Legal Matters FAQs inc how to divide the family home & mortgage during divorce

by Portico on February 9, 2017

  • SumoMe

How do you divide the family home during divorce? What costs do you face if you want to give your home or your rental property to your children? How can you reduce the capital gains tax on an inherited house?

Portico London estate agents put some key legal property questions to the experts…

  1. Dividing the family home and mortgage during divorce – how does it work?

When married couples decide to get divorced, there are a few options over how they can divide the family home.

Simon Nosworthy from Osbornes Solicitors states that “Whatever option the couple chooses, firstly the property – and any other properties the couple own – would need to be valued to effectively work out what there is to divide up. Once a figure has been set, the pair must decide whether to sell up or keep the house or buy the other out.

If the family home has to be sold, then the mortgage would be discharged and the proceeds of sale would be divided effectively leaving both parties’ to start again. If one party is to retain the property and buy the other out, then they would need to raise the money to buy out the other’s share and release them from the mortgage so they can buy another property. In some circumstances, one party would need to remain living in the home whilst both parties’ remained on the mortgage.

It’s important to note that there is no blanket rule and specialist family legal advice would need to be taken to advise on all of the options.”

  1. We’re splitting up (but not married), what should we do about our house?

It’s painful enough trying to decide whose CD is whose during a break-up, let alone splitting up finances.

Simon explains that “The situation depends on the ownership of the home and how it is held, but usually there are two options:

The property can be held as (i) joint tenants, where there are no definable shares or as (ii) tenants in common, where you both have defined shares. If the share is not specified, then the presumption is the property is owned in equal shares.

The home can then either be sold or transferred to one party, depending on whether they can (i) buy out your share and (ii) release you from the mortgage. Again, it is best to investigate your options at the time of separation so you can make a fully informed decision which may not require the home being sold.”

  1. My partner is moving in to the house I own – do they have any rights to the property once we live together?

“Ordinarily no. Moving a partner to live in your home does not automatically mean they would have rights to the property – but this is a complicated area of law…

In short, it depends on the arrangement made between you. Paying rent does not necessarily give them an interest in the property, but paying the mortgage and paying for renovations or home improvements which increase the value in the home may do so.

The best thing to do would be to consult a solicitor and have a Cohabitation Agreement drawn up, so you both know where you stand before moving a partner into your pre-owned home,” says Simon.

  1. What costs will I face if I give my house/rental property to my children?

Ollie Warne from London Accountancy firm, Accounts & Legal, says that “There are two main costs you can potentially face: Inheritance Tax and Capital Gains Tax.

Inheritance Tax

If you were to give your property as an outright gift to your child, it would be viewed as a “potentially exempt transfer” for the purposes of Inheritance Tax. If you died within seven years of giving the gift however, the property would be transferred back into your estate for Inheritance Tax purposes. If, on the other hand, you were to live for seven years after making the gift, you wouldn’t have to pay any Inheritance Tax.

Capital Gains Tax

If you’re considering giving your property as a gift, you’ll also need to consider other charges, like capital gains tax. CGT is applicable when the property is not your “principle primary residence.”

For example, if your child is not residing in the property when it is transferred into their name, they’ll have to pay the tax if the property has increased in value by the time they come to sell.

Similarly, if it’s a rental property you’re gifting – or any type of second home – you’ll likely have to pay CGT on any increase in value that’s occurred from the date of ownership to the date you gifted it.”

  1. How can I reduce the capital gains tax on an inherited house?

Ollie answers that “The easiest answer would be to move into the property and make it your primary residence. That way it would be tax free when you sell it – even if it was sold at a profit – as it is your “principal private residence.”

If that’s not possible, I’d advise moving into the property for at least a few months, as this would make a proportion of the gain tax free and also enable you to claim lettings relief.

Remember to not just deduct the value of the property when you acquired it (which is the probate value of the property when it was inherited), but also legal and estate agency fees. If you have spent money increasing the value of the property – adding an extension, for example – you could deduct those costs as well.”

  1. Can I buy part of my parents’ house?

“Yes, there’s no reason why you can’t buy part of your parents’ house, but before doing so there are a number of things you’ll need to discuss and decide on:

  • How will the property be held by each of you (in what shares)?
  • What are your long-term plans for the property and are they the same as your parents’ plans?
  • If for some reason you need to sell your share of the property or no longer wish to have a share in the property, how would this be dealt with?
  • What input will you have in any decisions made in connection with the property
  • If one of you should die who would inherit their share of the property?

If your parents’ property is mortgaged you will also need to decide whether you will repay the existing mortgage, together with any early repayment charges, or whether you will re-mortgage the property in all of your names.

Once you have decided to go ahead with the purchase you will need to instruct a solicitor to complete the transfer and you will need to pay their legal fees and any disbursements they incur. Finally you should check if you will need to pay Stamp Duty Land Tax (“SDLT”) on the purchase price. Under the new SDLT rules,  SDLT may be payable at an additional 3%  if you own any other properties in the UK or anywhere in the world either in your sole name or jointly with another person including any property held on trust with another.

If the purchase would result in you owning more than one property, you should obtain advice from an accountant with regard to any Capital Gains Tax consequences there may be,” finishes Simon.

 

This advice has been put together in collaboration with Osbornes Solicitors and Accounts & Legal, but we recommend you seek additional professional advice before making any financial decisions. If you are going through a divorce or are thinking of selling, feel free to Portico for advice: 0207 099 4000, or click here for an instant property valuation.

Portico
Portico is a residential estate agent with offices throughout London, specialising in flats and properties to rent and for sale. For landlords, we offer a range of unique packages which include monthly fees, a rental guarantee, complimentary maintenance between tenancies and assistance with tax return. For property sellers, we offer a dedicated property concierge and a complimentary refurbishment service.
Portico

Previous post: