Splitting stamp duty with an unequal share co-owner

Elo_C_09

Hi all, Hope you're good?

If you could offer me any advice i'd be most grateful, thanks in advance.

I am buying a property with my partner and we will have unequal shares in the flat we are buying (he cannot contribute anything to the deposit) and I think the share split is 80% to me and 20% to him.

We will be splitting solicitor fees etc 50/50 - but we wondered what to do about stamp duty? Should this also be seen as 80/20 or 50/50?

Thank you in advance for any advice, El

getmore4less

The purchase and % split should based on and include all costs not just the purchase price.

If they are paying fees then that cash needs to be accounted as deposit money as part of the total cost.

SDLT_Geek

You might get yourself into a pickle using the term ”deposit” which can be used to mean different things.

A contractual deposit is the earnest paid to the seller on exchange of contracts.

I expect what you are more interested in is the “equity” contributions made. As getmoreforless says people would normally look at the total capital each puts in towards the price and costs of purchase.

Hopefully Tom99 will be on to explain how the % shares should be worked out when the initial contributions and the proportions in which the mortgage is paid are different.

Elo_C_09

Thanks both for your reply and for patiently explaining this to me - I am in unchartered territory so I appreciate it.

Sorry, feel a bit silly asking, I think I was getting into a pickle about the word 'deposit'

For clarity:

I will be paying the full stamp duty and solicitors fees initially - I was going to suggest he sets up a payment plan to me directly to pay half/a percentage of these because I thought these costs would be classed as completely separate.

I will be paying £75k deposit on a £370,000 property

The mortgage instalments will be split 50/50 with a view to him overpaying to increase his share size. (They will be £510 pp without overpayment)

Thank you in advance

El

getmore4less

OK you are getting into more complicated territory with the overpayments.

I suspect you have not grasped some of the basics, which is quite common, even some solicitors mess it up.

There are 2 basic ways to look at the situation and these are known as equity based and get your deposits back.

For most 1 of those or a mix works quite well.

First thing to grasp is the total cost of purchase is the starting point.

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if we start with a very common approach which is get your money back and split 50:50.

This is in effect a interest free loan from the one providing the bigger cash input to the other.

If we use your numbers £75k mortgage £295k costs say £10k

the real cost of the place is £380k

if you pay upfront 85k and you split the mortgage 50:50 and you then get back your £85k and you split what's left after the mortgage.

this is the same as you lending the OH £42,500 interest free.

You could just do that and have a side agreement they start paying back the £42,500, that way you split the whole equity 50:50 and they owe you what's left of the side debt.

This could be a very simple approach if you are happy to fund the £42,500 interest free.

you own the place 50:50 and fund the property 50:50(improvements/maintenance)

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with the equity approach

you start with £85k and own 1/2 the mortgage worth, OH owns half the mortgage worth

If we use your numbers £75k mortgage £295k costs say £10k
the real cost of the place is £380k
you own £85k+£147,500 OH £147,500 that's
or 22.4%+38.8%:38.8% 61.2%:38.8%

on split you get the first 22.4% and slit the rest after mortgage 50:50

improvement/maintenance is done at the 61.2%:38.8%

overpayments become a bit of a problem because they reduce the debt portion and working out what they buy as a share becomes more complicated.


A variation on this which also may work for you as this is closer to what you describe.

you change the share of the mortgage to make it 50:50

this becomes you £85k+£105 OH £190k

so you split the mortgage payment £105k:£190k or 35.6%:64.4%

You improve maintain at 50:50 overpay the mortgage at 35.6:64.4

when split you get 50:50 then pay off the mortgage from those shares at 35.6:64.4

if your mortgage was going to be £1020, £510 each
it now become £363 and £657

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If the goal is to own the place 50:50 then why not start like that and structure the debt management to make that happen, either through a loan from you or by splitting the mortgage other than 50:50.

If the OH can fund a bigger cashflow than the £150pm on the mortgage needs you could do part debt from you and part bigger mortgage.

eg. say you lent the OH £20k

you then have
you £65k+£125 OH £20k+£170k
mortgage split is now 42.4:57.6 £422.50:587.50

OH owes you £20k say over 5 years £333pm
total extra in the first 5 years around £400pm
adjust the numbers to make a balance work,

Once you own a place you need to fund the maintenance so should not be stretched on income.


Might take a while to digest those options and make sure you are both in full agreement on what you do and what the implications are.

Tom99

[FONT=Verdana, sans-serif]Since you have unequal deposits you need a two or three part formula rather than a straight %age split.[/FONT]

[FONT=Verdana, sans-serif]Lets assume you are paying a total of £390,000 incl all fees and Party A contributes £85,000, Party B £5,000 and £300,000 is the initial mortgage amount. Lets also assume you are going to pay the mortgage 50%/50%.[/FONT]

[FONT=Verdana, sans-serif]Party A has paid for 21.8% (85/390) up front and Party B 1.3% (5/390) up front.[/FONT]
[FONT=Verdana, sans-serif]You are buying more of the property than your partner (£85,000-£5,000)/£390,000=20.5%[/FONT]
[FONT=Verdana, sans-serif]You will own the property as T in C and your Deed of Trust could say something like this:[/FONT]

[FONT=Verdana, sans-serif]On the sale of the property and after paying the sale costs and redeeming the mortgage the proceeds of sale shall be split as follows:[/FONT]
[FONT=Verdana, sans-serif]Party A – 20.5% of the gross sale price less costs of sale[/FONT]
[FONT=Verdana, sans-serif]The remainder – Split 50%/50% between Party A and B[/FONT]

[FONT=Verdana, sans-serif]The above formula is dynamic and the exact %age of the net proceeds each party gets will vary over time as the house increases in value and the mortgage is paid off.[/FONT]

[FONT=Verdana, sans-serif]Eventually when the mortgage is paid off the house will be owned:[/FONT]
[FONT=Verdana, sans-serif]Party A – (85/390 + 300/390*0.5) = 60.25%[/FONT]
[FONT=Verdana, sans-serif]Part[/FONT][FONT=Verdana, sans-serif]y B[/FONT][FONT=Verdana, sans-serif] – (5/390 + 300/390*0.5) = 39.75%[/FONT]

[FONT=Verdana, sans-serif]Party B overpaying makes it more complicated since you will not know in advance what the overpayment might be therefore the loan suggestion above may be simpler to administer. Own it 50/50 with mortgage being paid 50/50 from the start. Party A makes a loan of £40k to Party B meaning the both put £45k in to start.[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]The £40k loan can be with or without interest and kept separate from the house ownership with all mortgage payments including overpayment being kept 50/50.[/FONT]

AdrianC

Elo_C_09 wrote: »

I am buying a property with my partner and we will have unequal shares in the flat we are buying (he cannot contribute anything to the deposit) and I think the share split is 80% to me and 20% to him.

We will be splitting solicitor fees etc 50/50 - but we wondered what to do about stamp duty? Should this also be seen as 80/20 or 50/50?

It really is as simple as "Whatever you agree between yourselves". The only others involved are the government, and they don't care - so long as 100% of the SDLT is paid.

Tom99

Just out of interest how did you arrive at a 80/20 split?

getmore4less

one issue some have wit he get your money back and the side loan is it that if you charge interest that is taxable

There are other ways to pay the interest that hide it, like do a bit more of the shopping.

By taking on a bigger chunk of the mortgage the effect is the same except the the interest rate used is the mortgage rate.

if you notice in my previous example the £45,500 loan becomes a transfer of £45ks worth of mortgage.


Another thing to note that in house transactions you are down on day one by the costs(buying and selling)
A quick resale can result in a lingering debt if the parties don't both put in equal shares of those at a minimum.

if the values drops as well the bebt just gets bigger.

Elo_C_09

Morning all,

Than you all so much for taking the time to help me understand.

I guess the thing is, I am a cynic and if things were to end between my partner and I, I just want my money to work for me as close to as it would if I were buying alone, even if that means there is a loss.
My partner is fortunately is in agreement and doesn't expect anything more. I will have a digest of the options you have kindly helped me with.

@Tom99 - the 80/20 split was just a rough guess, I didn't quite know how to sort the percentages as didn't really know I had to include all monies into the workings out.

Thanks all, El

saajan_12

The key is what you both want, and we the shares can be made to work accordingly.

Elo_C_09 wrote: »

I guess the thing is, I am a cynic and if things were to end between my partner and I, I just want my money to work for me as close to as it would if I were buying alone, even if that means there is a loss.

Okay, so you want the money to work for you, ie not give an interest free loan of your deposit.

Now do you want a specific share of equity at the end of the day or do you want equal mortgage payments?

1) For 50/50 ownership
Total cost of property = £370k + say 10k costs = £380k so each person needs to contribute £190k.

You have £85k deposit and £105k of the mortgage.
Partner has £0 deposit and £190k of the mortgage.
You pay 105/295 = 36% of the mortgage payments
Partner pays 190/295 = 64% of the mortgage payments.

Any repairs, further borrowing, overpayments etc paid 50/50.

2) For 50/50 mortgage payments
You contribute £85k deposit + £147.5k mortgage = 61.2% of property
Partner contributes £147.5k mortgage = 38.8% of property.

If partner then overpays, the calculation needs to be done again.