Divorce and buying partner share

V2001

I'm asking this on behalf of a family member.  He is getting a divorce and wants to buy his wife out of her share of the house, but can't due to cost of divorce.
Another family member can buy his ex wife share out and then both family members take residence.
There is a mortgage on the property, how should the tenancy be structured as tenants in common, and who will own more of the share as the 1st person will be the one paying the mortgage

Jeremy535897

If husband and wife owned the property 50:50, then the family member will own 50% when they acquire the wife's share. Presumably they will pay her 50% of the value less 50% of the mortgage. When that share is acquired, the solicitors need to draw up the joint ownership as a tenancy in common. The shares between the new joint owners can be varied if they both agree, but both will be on the mortgage while there is debt secured on the property. If one pays all the mortgage costs, there is a gift of the proportionate part.

V2001

So if person A pays all the mortgage he is gifting a proportion to B ?
How is this structured so the tenancy agreement shows person A acquires more of the share as they are the one paying all the mortgage....
Trying to avoid create any further tax liability in the future such as a GROB.

Jeremy535897

If one party pays all the mortgage, the only way to structure it without any sort of a gift is for that person to be the sole owner. I don't see any sort of gift with reservation issue here, though. The family member buys a 50% interest in the property at market value, taking into account 50% of the mortgage. If that family member chooses to pay the husband's share of the mortgage, that is a simple gift, and may well fall within the normal expenditure out of income exemption. It would get messier if an attempt was made to compensate the family member by gifting them an extra proportion of the property.

V2001

Ok thanks.
Let's say this happens, the couple divorce. The house is worth 650k, there is a 200k mortgage, leaving equity of £450k. Person A buys the share of the house at 50% for 225k and takes on 50% of the mortgage at 100k.  Person B retains the other 50,%.

Now if Person A wants to clear of the mortgage of 200k when they buy the 50% share, is this then a gift,? Or is it simply they just own more of a share than 50% as tenants in common,,?
How is it worked out if the person buying the share wants to clear of the mortgage at the same time when buying?

Jeremy535897

The first step is for Person A to buy the wife's 50% for £225,000. The second step is for Person A to repay the whole mortgage of £200,000. This latter step can be dealt with as follows:

• person A simply repays the £200,000 and keeps 50% of the property. Person A has made a gift of £100,000 to the husband, which is a PET
• person A repays the £200,000 and husband transfers 100/650 = approximately 15% of the property to person A in consideration of person A repaying his share of the mortgage. There is no gift, and the property is owned 65% person A 35% husband

As husband and wife occupied the property as their main residence, there should be no capital gains tax. There may be stamp duty.

V2001

Thanks for that very nicely explained.

V2001

• person A simply repays the £200,000 and keeps 50% of the property. Person A has made a gift of £100,000 to the husband, which is a PET

Can I ask can the above cause a grob or poat issue in anyway? More concerned about poat as cash will be paid..

Jeremy535897

I can't see why it would, unless there was some other element, for example if husband said he would pay all the other costs.