Buy to let mortgage dilemma- transfer of equity?
I wondered if anybody has experience of can advise on the following:
My sister and I started building a property portfolio around 15 years ago.
Two of the properties have mortgages in our joint names, the others are solely in one name. We have always recognised the properties as shared and have declared a split of the rental income/ losses on our respective tax returns over the years,
We are now realising this may cause significant problems for inheritance tax planning and are trying to seek the best way forward. We have spoken to our financial advisor and one of the simpler ways would be to add each other’s names to the properties in one name, however our mortgage lenders appear to be resistant to this idea.
Has anybody had experience of doing this and if so, any advice?
We are also looking at life assurance to enable our beneficiaries to be able to pay the ‘owed’ equity to the beneficiaries of the estate when one of us dies…. Any advice gratefully received.
June
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Member Since February 2011 - Comments: 3453 - Articles: 286
1:34 PM, 15th July 2015, About 11 years ago
Hi June,
One of the reasons the BTL lenders may be unwilling to transfer to sole names is that you are reducing their security from 2 to 1 person.
A mortgage is joint and several. Meaning you are both equally liable for repaying not just half the loan but all of it if the other does not pay.
You may find it easier thought to remortgage to another lender in sole names if the LTV and stress testing are within current criteria.
Member Since January 2011 - Comments: 12193 - Articles: 1395
8:18 PM, 15th July 2015, About 11 years ago
Hi June
Yes I have a lot of experience in this and one solution involves using a Declaration of Trust – see http://buytoletconveyancing.co.uk/declaration-of-trust/
However, this is not without its complications because transfer of equity (even beneficial interests) can trigger capital gains tax liabilities where the owners are not spouses or civil partners.
I recommend you contact the law firm I’ve linked to and that you seek professional advice from them.
.
Member Since July 2015 - Comments: 11
8:21 PM, 15th July 2015, About 11 years ago
Hi June. If anything, providing the person being added to the deed and mortgage hasn’t an adverse credit history, I would have thought the lender would be fine with this. For them, it spreads the risk over two people. If I have read the post correct, the deeds are in joint names, it is simply a mortgage issue.
Member Since July 2013 - Comments: 1264 - Articles: 1
3:50 PM, 17th July 2015, About 11 years ago
Lenders usually require the title deeds to reflect the names on the mortgage. The problem is that they’ll have to go through all the hoops of checking out the person to be added as it will effectively be a new loan. Simply a mortgage issue is not “simply” any more due to the new affordability checks etc.
Neil, I think they want to add each other not reduce from joint to sole.
I presume all the sole properties are in the same name?
Member Since July 2015 - Comments: 1
10:28 AM, 22nd July 2015, About 11 years ago
Thx everyone…and yes we want to add each other, where the mortgage is in a sole name. I’m going to speak to the inland revenue for advice too.
In terms of transferring equity by a declaration of trust, which we are happy to do, I would assume the ‘gain’ would not be taxable until realised? It’s confusing because would the person transferring the equity be deemed to have made a capital loss?
We realise we have created a problem for ourselves and/or our beneficiaries and want to find the most practical/tax effective way forward.
Member Since January 2011 - Comments: 12193 - Articles: 1395
11:04 AM, 22nd July 2015, About 11 years ago
Reply to the comment left by “June Freeman” at “22/07/2015 – 10:28“:
Any gains become subject to tax at the point of transfer.
The person making the transfer would only be making a loss if the property is worth less now than was paid for it.
.