Save on stamp duty but don’t skimp on legal advice
In his recent budget Rishi Sunak revealed an extension of the stamp duty concession which had helped to boost the residential property market during the pandemic. The extension of the nil rate band to £500,000 will continue until 30 June 2021 before reducing to £250,000 and finally reverting to £125,000 after 30 September 2021. The Chancellor of the Exchequer also announced a ‘mortgage guarantee’ designed to assist those struggling to save a deposit of more than 5%. The intention, apart from trying to boost the economy, is to turn ‘generation rent’ into ‘generation buy’.
These announcements will undoubtedly be welcome news for those in the process of buying a property or wanting to get on the property ladder for the first time. However, without wishing to put a damper on things it may be sensible for prospective buyers to spend some of the money saved on more detailed legal advice as to how best to own the property.
Many first time buyers will not be married. Some may be reliant on financial assistance from relatives to be able to proceed. Whatever the individual circumstances, buying a property together is a huge commitment and care needs to be taken to try and minimise any problems that could arise in the unfortunate event of separation.
Most joint buyers will be advised of the difference between owning the property either as joint tenants or tenants in common – an important difference which can have an impact should one of the co-owners unfortunately die. But what if one of the buyers contributes significantly more than the other to the deposit? What if the expectation is that one of the owners will contribute much more towards the mortgage repayments? Are the couple happy for any equity in the property to be owned equally regardless or would they prefer that they be in unequal shares, eg to reflect contributions?
In our experience it is always better to discuss, hopefully agree, and then properly document that agreement. There will undoubtedly be additional legal costs involved in having a formal deed prepared at the time of purchase but those costs are likely to be significantly less than those incurred if the co-owners separate and then cannot agree what is to happen. If a deed (or declaration of trust) is properly negotiated and prepared it can substantially reduce the scope for disagreement on separation as it can be very hard for one person to argue for a different result. In the absence of clear evidence of what was agreed by the joint owners it is often necessary for the court to engage in a far reaching investigation into what was said and done to try and infer what may have been agreed. It can often descend into a case of ‘he said, she said’. The court does not have the same discretion it does on divorce to strive for a result which is ‘fair’. In a speech given in 2017 by the then President of the Supreme Court he said that:
‘In the absence of legislative intervention, I think that the unmarried can expect a rougher ride than their married counterparts, at least when relying on the law to deal with the fall-out from their falling out’.
A Declaration of Trust can clearly set out the shares that each person is to have in the property and stipulate such things as to who will pay the mortgage. It may also contain provision to allow one person to buy out the other’s share on separation.
Loans from, or financial assistance given by, family members can also be a bone of contention on separation. Arguments often rage as to whether it was a loan or a gift. Again having a clear understanding and documenting this in writing can be enormously helpful should things not work out as planned.
In an appropriate case it may also be sensible to have a more wide ranging cohabitation agreement which can provide in greater detail how outgoings are to be paid and, eg deal with ownership of other assets such as investments or more expensive possessions.