noob question - dividing properties after breakup

dervaya

Hello everyone

Would appreciate any advice here. After splitting with my bf we are left with two properties that we own exactly 50/50. We put the same down on the deposits, split all upkeep and development work etc. All straight down the line. One property is worth 220k with a 140k mortgage. The other is worth 300k with a 150k mortgage. I live in the first one, he in the second. We'd both like to keep the flats we're in. Whats the best way to settle this for both parties - split the difference between the two up to date valuations (both arrived at after several EAs visits) ie. 80k and him to pay me half ie 40k?

Also what would be the best way to minimise tax exposure to this - I realise he can't just chuck a wedge of money into my account. Would it be legal for him (as an example) to - while he is still listed as a co-mortgage holder on my property - pay that money as an direct overpayment on the flat mortgage itself, then shortly after get removed from the deeds (as I simultaneously get removed from the deeds from his?) Or would that be likely to be seen as full on tax evasion?

Thanks folks

Bluebirdman_of_Alcathays

You can settle on terms however you want - everything can be negotiated. But where would either party get the money to chuck about? As far as I can see there is nothing liquid - just debt. You need approval from the people that hold the collateral before you can do anything, and then you'll need solicitors to organise the relative transfers.

natrapx

You both seem to have £115k in equity each, split between both properties. (£520k in property - £290 in outstanding mortgage = £230k)

Your property has £80k equity in it.

To make things even, he would need to give you £35k.

silvercar

natrapx wrote: »

You both seem to have £115k in equity each, split between both properties. (£520k in property - £290 in outstanding mortgage = £230k)

Your property has £80k equity in it.

To make things even, he would need to give you £35k.

I agree with this. If you are keeping the existing mortgages, then it is the equity that you are left with by single ownership of each property that needs to be equalised.

One property has 80k equity, the other 150k. difference is 70k, requiring a payment of 35k.

Consider also any potential CGT calculation. CGT may be payable if someone is removing themselves from a property that was not their principal private residence for the whole time they owned it. There are a number of allowances available, so there may not be tax to pay, but do the calculation.

Kynthia

If those are achievable sale prices, not tge aspirational marketing price, and tge redemption values of the mortgages, possibly bearing in mind any early repayment charges, then you are splitting £230k in equity between you. Are there any other assets to split?

So it's up to you both how you do it as long as you agree. However it's usually best to have a clean break, with no one's names on tge others mortgage and deeds plus everything in writing. So are you both able to remortgage a property into your own names and can the one with the more expensive property increase the mortgage by the £35 to give in cash, or to reduce the mortgage, of the other? Each go see an independent mortgage broker.

Do both properties have residential or btl mortgages? How long have you owned them and which did you live in? If one property wasn't tge home for one of you then it may be liable for CGT for one or both of you to pay now or in the future. This shoukd be calculated and deducted from the split now. Plus there may be stamp duty on each of you selling your share of one property to the other which shoukd be split from the pot before you each calculate your share of the assets. A visit to an accountant might be worth it too.

bouicca21

A clean break is best. It's always best to sort things out between you and then get the courts to rubber stamp (and you do need the rubber stamp) because fighting costs £££££s. So you are going about things the right way.

But there are more questions to consider. Can you each afford the relevant mortgage? Will the banks co-operate? What other assets and liabilities are there? A settlement needs to take the whole financial situation into account - insurances, pension pots etc. Some - like pension pots - will be more or less relevant depending on your respective ages.

Things will be more complicated if there are children.

TBagpuss

As others have said, you need to find out whther the lenders will release you from the mortgages secured on the 'other' properties.

You also need to look at the CGT implications. If he buys you out of your interest in Property 1, then you are disposing of your interest in that property to him and if that is not your principle residence you may have a CGT liability. The liability would be based on the increase in value betweeen when the proeprty was bought, and when you transfer to him, so your liability will be on the whole on the gian, not just on thre £35K he actually pays you.

Simialrly, when he transfers his interest in property 2 to you he will have a CGT liability based on the incresae in value of his share of that property. If one property has gained more than the other, then one of you will have a bigger tax bill, so it may be fairer to agree to take into acccount the total tax liability and then divide the net after that.

If you lived together in one of the properties then you could have a situation where one of you can cliam PPR expemption, but the other can't.

I'd suggest that you speak to a tax advisor about possible options.

dervaya

Thank you all so much for the advice. We are proceeding amicably and just want to get it done, there are no hard feelings and trust is still there thankfully. The 35k figure looks about right and fair and of course a visit to a tax specialist is definitely in order re:CGT etc. I've already spoken to my bank about taking on the mortgage in one name only and they are fine with it as it's not extravagant and well within my means. We'll be taking names off the deeds and mortgages at the same time and hopefully that will be that. there are no dependants and everything we did 50/50 it should be (comparatively) straightforward.

Again, invaluable advice and information, thank you for making a difficult couple of days number-crunching a little easier :beer: