Make your property work for you

Married or not, when you buy a home with
someone else you need to think about the legal
aspects of ownership. Most people don’t know that it’s
possible to own a property with a partner in unequal
shares – but it is. Legally, you can be joint tenants where
you have equal rights to the whole property, or tenants in
common where you own different shares of the property.
There are consequences and considerations for both
types of ownership so it’s important to choose what is right
for you. Imagine the following scenario (with apologies to
Billy Crystal and Meg Ryan):

When Harry met Sally they (eventually) fall in love, and
buy their first home together for £300,000. Harry and Sally
were able to combine their individual resources and
buy the house without the need for a mortgage. Harry
contributed £100,000 whilst Sally was able to contribute
£200,000. Costs and disbursements were met by the two
equally.

After consulting with their solicitor, they opted to proceed
with a split of 33.4 per cent to 66.6 per cent in favour of
Sally, reflecting their respective shares. This was formally
recorded on the ‘deeds’ to the property and it was
agreed that this was how the proceeds would be divided
on sale.

Now consider some time has passed, Harry and Sally are
married and want to buy another property but this time
as an investment. The property has a potential monthly
rental yield of £1,000. At this point in their lives, Sally has
a successful career as a journalist and pays income tax
at the highest rate. Harry stays at home and looks after
their young children. He does not have any income. Harry
and Sally can once agree how they own the property,
putting 99 per cent in favour of Harry and 1 per cent in
favour of Sally and thus avoiding paying the higher rate
of income tax on £999 (monthly) of the rental income. This
will make good use of Harry’s annual personal allowance
for income tax.

Now suppose the children are older and do not need full
time care. Harry has returned to work as a top political
consultant. Unfortunately, Sally’s mother, Meg, requires
full time care and Sally has opted to retire early from
journalism and care for her. Harry and Sally’s financial
incomes are reversed. They visit their solicitor and reverse
the percentage share of their investment property to
once again maximise their income tax allowances.

Everyone’s circumstances are different of course and
you should always seek the advice of your accountant or
wealth adviser when making changes to the ownership
of property, taking into account any pre or post-nuptial
agreements in place and making sure that your wills deal
with the property in the correct way.