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.