There is a growing trend amongst the older generation who have wealth tied up in their property and living on their own, to sell up and buy a house together with friends. If this is your plan in 2023, Lucy Wood, B P Collins’ private client partner advises there are several things that you need to consider before moving in.
Property ownership: One option is to become ‘Joint Tenants’, whereby upon your death, your friends will automatically assume your share. Another option is to become ‘Tenants in Common’ and to have a Declaration of Trust setting out the proportion of the property that you each own, which is likely to depend on how much money each of you has contributed to the purchase of the house. This is important as your share in the property is likely to form the main part of your estate in your will.
Write a will: This ensures that your assets pass to the individuals that you have chosen, rather than the intestacy rules applying. Within the will you may want to consider:
Discretionary trust: This would mean giving your interest in the property to your trustees to hold for your identified beneficiaries – who will get the benefit of the assets in the future.
Life interest trust: You can specify that after you pass away, your friends can remain in the property for the rest of their lives and once the last surviving friend is gone, the trust would end, and your share of the property would be left to your chosen beneficiaries.
Inheritance tax (IHT): If one person leaves their interest in the property, which has a value of over £325,000 entirely to a friend, there would be inheritance tax implications. If, however, the decision is made to leave the share of the property to direct descendants, the residence nil-rate band (RNRB) may apply which could result in an additional £175,000 of tax-free allowance, depending on the size of your estate.
Lasting powers of attorney: Every member of the group should have a power of attorney in place appointing somebody they trust, should they lose capacity. An attorney can make financial and/or welfare decisions on your behalf when you are no longer able to do so.
If you’re thinking about buying a home with friends, it’s vital that you speak to a private client lawyer beforehand about estate planning. The private client team can be reached on privateclient@bpcollins.co.uk or call 01753 889995.
