The Bank of Mum and Dad 25 November 2019 Newcastle | Leeds | Manchester
2 Housekeeping SSID - WH Visitor | Password - W@rdh4d@w4y30 Newcastle | Leeds | Manchester
3 Agenda • How to avoid a legal battlefield with the children (or significant other) – Is it a gift or a loan and how do you protect your loan? • Claire Simmons, Associate • Protecting your Investment in the children (and their home!) • Andrew Facer, Partner • Protecting a parent’s investment via a Pre -Nuptial agreement • Sarah Crilly, Partner Newcastle | Leeds | Manchester
Welcome! Andrew Facer, Partner Newcastle | Leeds | Manchester
How to avoid a legal battlefield with the children (or significant other) – Is it a gift or a loan and how do you protect your loan? Claire Simmons, Associate Newcastle | Leeds | Manchester
6 How can parents help their children on to the property ladder? • Financial gift. • A loan. • Acting as a Guarantor on a mortgage. • Getting a joint mortgage with the child (i.e. buying a property in joint names with the child but be aware of stamp duty at 3% additional rate). Newcastle | Leeds | Manchester
7 Is it a gift or a loan? Parents need to consider: • Is it a gift or a loan on an unconditional non-refundable basis? • Do you expect to have the money returned to you eventually and if so, when? • If a gift you have no control over the property as no interest in it. For example, child could; • Sell/share ownership with someone else • Re-mortgage Newcastle | Leeds | Manchester
8 How do you protect your gift or loan? Legal Charge • Legal Charge and Loan Agreement. Be aware of Consumer Credit Regulations. • Legal Charge will be registered at Land Registry together with a restriction. • Cannot sell/share ownership or re-mortgage without your consent. • Consent to occupiers. • If mortgage being obtained = Consent to mortgage lender required. • Be aware of any fall in house prices/further borrowing. Newcastle | Leeds | Manchester
9 How do you protect your gift or loan? Trust Deed • Would "ring fence" any initial percentage contribution made to the purchase price. • Can set out responsibility for any outgoings relating to the property. • Can set out what will happen to the property if the relationship with any co-owner breaks down. • Protected at Land Registry with a restriction. • On a future sale of the property following the repayment of mortgage, costs and disbursements associated with the sale your contribution would be repaid to you/your child. • Be aware of any fall in house prices/further borrowing. Newcastle | Leeds | Manchester
10 Trust Deed Case Study • Charles Cornwall has a son Harry from his first marriage. He has since remarried to Camilla. • Harry is buying his first property with his girlfriend Meghan Sparkle. Charles wants to give Harry a deposit towards the property. Charles' other son Will and his wife Kate don’t get on with Meghan and there is some family conflict surrounding this. • Purchase price of property: £250,000.00. • Mortgage: £180,000.00. • Gifted deposit from Charles: £70,000.00. • The deposit is disclosed to the mortgage lender who agrees to proceed on this basis. The property is purchased by Harry and Meghan. After a couple of years Harry and Meghan split up. Harry and Meghan sell the property. Meghan gets 50% of the net proceeds of sale. Charles feels very aggrieved and this has caused a lot of family friction with Will and Kate as Will feels £35,000.00 of his future inheritance has gone to Meghan Sparkle. Newcastle | Leeds | Manchester
11 What could have been done to "ring fence" the £70,000.00 contribution Charles has made towards the purchase of the property? A Trust Deed could have been put in place setting out what the position would be on any future re-sale of the property. The Trust Deed would set out as follows: • After the repayment of the mortgage. • Following the repayment of any mortgage; and after the deduction of the costs associated with the sale of the property i.e. legal fees and disbursements and estate agents fees. • £70,000.00 would go to Harry. • Any increase in the equity in the property would either be split 50:50 between Harry and Meghan or in such other percentages as the co-owners may decide. Newcastle | Leeds | Manchester
12 What would a solicitor need to check with regard to a gifted/loaned deposit? • Proof of identity for Charles and Camilla if the monies are coming from a joint account. • Evidence of the source of the funds i.e. a bank statement and as to whether the funds are coming from savings or other in order to comply with AML Regulations. • Is Camilla ok with the loan?/should she be informed to take independent legal advice. • Disclose to mortgage lender third party gift/loan and Trust Deed. Newcastle | Leeds | Manchester
13 Newcastle | Leeds | Manchester
Protecting your Investment in the children (and their home!) Andrew Facer, Partner Newcastle | Leeds | Manchester
15 Parents Purchasing • The principle • Taxation consideration • Level of protection: • Marriage • Cohabitation • ‘Lodgers’ Newcastle | Leeds | Manchester
16 Outright Gift • The principle • Taxation consideration • Level of protection: • Marriage • Cohabitation • ‘Lodgers’ Newcastle | Leeds | Manchester
17 Loan to child • The principle • Taxation consideration • Level of protection: • Marriage • Cohabitation • ‘Lodgers’ Newcastle | Leeds | Manchester
18 Trust Purchase • The principle • Taxation consideration • Stamp duty opportunity • Level of protection: • Marriage • Cohabitation • ‘Lodgers’ Newcastle | Leeds | Manchester
19 Practical Examples • Funding Trust by normal expenditure out of income • Partial equity considerations/ loans • The holiday home purchase via Trust Newcastle | Leeds | Manchester
20 Newcastle | Leeds | Manchester
Pre-Nuptial Agreements Sarah Crilly, Partner Newcastle | Leeds | Manchester
22 Why Protection? • 42% of marriages end in divorce • 45-49 most common age bracket for divorce • one in eight adults are cohabiting • Two in three cohabiting couples are unaware that there is no such thing as “common law marriage” • Need for Pre-Nuptial Agreements and cohabitation agreements Newcastle | Leeds | Manchester
23 Pre-Nuptial Agreements • Not binding in English Law • Based on state of law at breakdown of marriage • No statutory reference to nuptial agreements • Case Law Newcastle | Leeds | Manchester
24 Basic Criteria • Agreement must be contractually valid • Signed as a Deed • Signed more than 28 days before the wedding • Parties must exchange financial disclosure • Both Parties must have obtained legal advice before signing Newcastle | Leeds | Manchester
25 Types of Assets which need protection • Loans to parents • Trust Assets • Company Shareholding • Inherited Wealth Newcastle | Leeds | Manchester
26 Newcastle | Leeds | Manchester
Newcastle | Leeds | Manchester Ward Hadaway @WardHadaway wardhadaway.com
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