Family Law Specialist

Nicola Williams Solicitor

Nicola Williams Solicitor

Cheadle, Stockport,
Greater Manchester

Family Law & Finances

Nicola Williams Solicitor

Nicola Williams Solicitor

financial family law for individuals and families

Why you need a cohabitation agreement

Living together? Buying a home or a car? Taking out a loan?

You need a cohabitation agreement. They’re straightforward, affordable and can save you a fortune.

What is a cohabitation agreement

Sometimes known as a Living Together Agreement, a cohabitation agreement is a basic contract/agreement between couples about the property they own.

Typically, a cohabitation or living together agreement will:

Identify the shares you each have in your home (sometimes this is to confirm that one of you has no share in the value of the property);

State whether contributions to living costs will entitle either of you to a share (or a greater share) in the value of the property;

List any other significant jointly or separately owned property or assets (e.g. a car) and the shares you each have in them.

A more detailed cohabitation agreement will set out your intentions if one of you dies.

For example, you might want to ensure that your partner is able to continue to live in your home. This may be until they have another relationship or die or it could be for a fixed period of time.

How a cohabitation can save you money

If you are putting a deposit down on a house/flat purchase, itis vital that you record the share it is buying in your home.

If you don’t have a legally recognised document, you might lose some or all of your share of the equity if

one of you dies;

your partner gets into debt; or

you split up.

The laws on joint ownership of property are very strict. There are no special laws for cohabiting couples.

If you buy a property jointly with another person, it is very important to accurately record your share and your agreement about paying the mortgage and insurance.

It’s your most important asset and it’s easy to protect. Don’t risk losing any of it.

Tax

A cohabitation agreement can help save you tax in many ways.

Whether it is in relation to additional rate stamp duty, capital gains tax or income tax, having an accurate, legally recognised record of your financial relationship will help.

Affordable legal help

A straightforward agreement has to be affordable for everyone, not just the rich.

It also has to be right for you. It has to do the job you want it to do.

Don’t be tempted to download a generic DIY document because it’s ‘free’ or cheaper than getting a new front door key cut. The chances are it won’t be worth the paper it’s printed on.

All legally binding contracts/agreements have to be properly drafted to be legally binding under English and Welsh law.

Fortunately, the cost of protecting yourself and your property typically starts at around £240 including VAT for a straightforward declaration of no interest in property. A standard cohabitation agreement starts at £360 including VAT. And a more detailed agreement with a floating declaration of trust starts at £600 including VAT.

Fixed Fees

A cohabitation agreement (also known as a living together agreement) is a fixed fee service. After an initial free consultation, I will send you a fixed fee quote.

Summary

Cohabitation agreements are legally binding documents, setting out shares in property for unmarried couples.

It is an affordable and sensible way to avoid losing part or sometimes all of your equity in a jointly owned property when you live together.

There are often tax advantages in being able to prove what you own (and what you don’t own).

To find out how I can help you decide whether you need a cohabitation agreement, use the form below to get in touch.

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cohabitation agreement tied together

How to avoid higher rate stamp duty with a deed of trust

Higher rate stamp duty isn’t always payable on second homes.

Exemptions and reliefs apply but in order to make full use of them, you will need to be able to prove that you are not legally liable.

This is where a deed of trust is often very useful.

Tax - when is additional stamp duty payable

When is higher rate stamp duty payable?

Higher rate stamp duty is usually payable when you buy a second property in England or Wales. It is not payable when you replace your main residence.

Who pays the tax?

The new owner(s) of the property are liable for the tax.

Tax is usually due within 14 days of completion of the purchase.

However, a legal owner/purchaser and a true owner are not necessarily the same person.

When a legal owner/purchaser and the true owner aren’t the same – a bare trust.

The purchaser is also known as the ‘legal owner’ or the ‘proprietor’. Their name is recorded on the proprietorship register at the land registry.

But in fact, it is quite common for the purchaser or legal owner to have no interest in the benefit or value of the property itself.

They are owners in name only. The property is registered in their name but belongs to someone else.

This type of situation is known as a bare trust.

The legal owner is a trustee in these circumstances. The true owner is called the beneficiary under the trust or the ‘beneficial owner’.

Owning or buying a property on behalf of someone else.

There are many reasons why this happens.

Someone without the mental capacity to manage their money, may need help buying a home;

Children under 18 cannot be registered as legal owners of property;

A divorced couple may have an agreement that a property in joint names only really belongs to one of them;

Parents of adult children may need to be on the title deeds because they are also on the mortgage but don’t want a share in the property.

Exemption where the legal owner has no beneficial interest in the property.

In principle, if you own more than one residential property on completion day and you are not replacing your main residence, higher rate stamp duty is payable.

However, if you aren’t really the true owner (i.e. you have no beneficial interest in the new property at all), higher rate stamp duty is not payable.

Using a deed of trust to prove the true ownership

The TR1 land registry form transfers the legal ownership.

If the legal owner is not the beneficial owner, you will need to specify this in a separate document, known as a deed of trust.

This deed can also set out other agreed terms.

How much money can you save?

Higher rate stamp duty is 3% of the total value of the property. This is on top of existing stamp duty payable. So, if the property sale price is £300,000, the rate will be 3% up to £250,000 and 8% on the balance, making the total payable £11,500.

If higher rate stamp duty isn’t payable, the calculation is no stamp duty up to £250,000 and 5% on the balance. That is a total payable of £2,500.

Therefore, if you need to demonstrate that you are not the true owner of the property, a deed of trust could help you save £9,000 in higher rate stamp duty.

If the true owner is a first time buyer, there will be no stamp duty payable if the purchase price is £300,000.

You can find more details on higher rates of stamp duty here on the gov website.

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Nicola Williams is a Family Law Solicitor in the AFG Law Family Team at Cheadle Royal Business Park, Brooks Drive, Manchester, Cheadle SK8 3TD