What’s the best way to buy a house with my fiancée?
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I live with my fiancée in a flat she purchased in November 2019 for close to £450,000. I have contributed to rent since moving in just before the first Covid-19 lockdown in March 2020. We are looking to buy a house jointly for approximately £800,000, and I’d like to ensure that I don’t make any rookie mistakes as I’ve never purchased a property before. Can you help me with the tax considerations?
Vanessa Lee, tax partner at accountancy and business advisory firm BDO, says buying a property with your fiancée is not only a fantastic step forward with your relationship, but also provides an attractive means to pool financial resources.
There are immediate tax issues to be conscious of, but it is important to note that unmarried couples have very few financial rights over each other.
Before considering your property acquisition, it is important to understand whether the intention of your rental contribution was to acquire a beneficial interest in her flat; or if it was to cover general household expenditure. As the flat has been your fiancée’s principal private residence since purchase, there will be no capital gains tax due on the sale of the flat.
As you move forward with the property purchase together, you will need to agree whether you are acquiring the property as “joint tenants”, where each of you own the whole property and in turn you must act together as a single owner; or if “tenancy in common” is more appropriate, where you each own a separate and potentially unequal share of the property. Tenancy in common is often the option for friends or unmarried couples who are buying together.
As with joint tenancy, tenants in common must agree if the property is to be sold, however, they can each leave their share of the property to whoever they like in their will. With joint tenancy — which is usual with married couples — it will automatically pass to your fiancée.
It would be worth considering a cohabitation agreement to address how you share finances while living together or what happens if one party becomes ill; dies; or if there is an irretrievable breakdown in your relationship. If there are major life changes, it should be revisited and updated.
At the same time as drawing up a cohabitation agreement, I would recommend that you each have wills drafted to ensure that each of your intentions on death are appropriately reflected. This is particularly important at present as you are not married.
Finally, the temporary increase to the stamp duty land tax threshold starts to be withdrawn in the coming months, so the timing of completion will influence the levy.
Can I transfer Isa savings to my wife?
I am in my seventies and have recently been diagnosed with a rare form of cancer. I want to get my finances in order. My wife and I have equity Individual Savings Accounts worth around £60,000 each, held on the Hargreaves Lansdown platform. I would like to transfer my Isas to her name now to minimise any financial complications after I die. But if I do that will they keep their tax free wrapper? What should I be aware of when transferring investments? I also have some investment bonds. Should I transfer them now or wait for it to happen naturally when my will comes into effect? What are the pros and cons?
Megan Rimmer, chartered financial planner at Quilter, says we have a natural desire to want to ensure that our hard work can continue to be enjoyed by our loved ones, even when we are not here. For many people, planning for “afterlife” is often just as important as planning for the rest of our life.
You cannot transfer an Isa to your wife and keep it within the Isa wrapper. If you wanted to gift this money to your wife while you are alive, you would need to take the money out of the Isa first.
To keep the money within the Isa and allow your wife to benefit from its tax-efficient nature, it might be better to wait for the money to be gifted upon death in line with your will.
If you were to pass away, your wife would be able to inherit your Isa savings via an additional permitted subscription allowance (APS). This would give her an additional allowance equal to the value of your Isa (£60,000), allowing her to transfer the funds and keep the monies within the Isa wrapper. This is in addition to her annual allowance of £20,000, meaning she would have a total Isa allowance of £80,000 in that tax year.
Investment bonds are different. Most commonly, investment bonds will have a policy owner and a life assured. They could even have more than one life assured. The policy owner can be different to the life assured and therefore it is possible to transfer the bond into your wife’s name by way of assignment. This is not classed as a “chargeable event” and therefore no tax liability would be created.
An example of a chargeable event would be if the bond were surrendered, either fully or partially, or if the life assured died. While the assignment itself would not create a liability, any tax due later would then be payable by your wife and would be calculated based on her individual circumstances. Pay particular attention to the identity of the life assured on the policy. If it is only you and you passed away, this could create a tax liability as it is a chargeable event.
In all circumstances, as you are gifting to your wife, no inheritance tax (IHT) would be payable. I would advise speaking with a regulated financial adviser to ensure all options have been considered.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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Our next question
I have decided to purchase a four-bed property in London jointly with three other friends so we can live and work in the centre of the city without paying rent. However, one of my friends is not currently a UK resident and we believe we may all be liable for the new non-resident stamp duty land tax surcharge. Is this the case and is there any way around it?