Remortgaging due to crazy benefits clause

diyaddictmse

theartfullodger said:

Is ex declaring rent income to HMRC?  And realises she will be liable for CGT as she's not living there? (may be none to pay if gain low enough).

I told my friend a long while ago that she needs to (and increase the rent accordingly), but I doubt it. As for CGT, I'll be amazed if she realises she's liable.

Reading these replies, I've learned just how financially illiterate I've been too. I paid off my mortgage a  long time ago so haven't needed to know this stuff. I shall be passing everything here along to both of them tonight.

diyaddictmse

silvercar said:

diyaddictmse said:

theoretica said:

Did the ex-partner live in the house until 7 years ago?  That will matter for CGT. As probably would whether they are or were married.

So if they sold the property, paid off the mortgage, sorted tax, he should have over £100k to find somewhere to live, added to housing benefit a possibility for the rent portion of shared ownership?  That might be possible especially with retirement properties, depending on where in the country he needs to be.

Yes, she lived in the house until 7 years ago. They never married. I did wonder about the CGT element. Presumably he'd have to pay it on his share, and she'd have to pay it based on the increase in value over the last 7 years?

Although the house is in her name, he'd have a good case for claiming half its value, since he did loads of building work on it and paid half the mortgage while they were together. This could be one reason why she's happy to let him have half the proceeds.

I've looked into shared ownership but it's problematic, plus he's adamant that he wants to stay in his home. I can see that's looking increasingly unlikely though.

On the face of it, the house is hers, so all the CGT liability is hers. It is calculated on a linear scale with a percentage deducted for the time she lived in it plus a couple of other allowances.

He doesn’t own the house, so has no CGT liability. If he could claim beneficial ownership of a share, he has lived in it as his main residence for the whole time of his ownership, so has no CGT liability. Though claiming a share of the property, reduces her liability.

I've just looked up beneficial interest. If I've understood correctly, it would be in both their interests for him to claim beneficial ownership of 50%. It would reduce her income tax liability as well as her CGT liability. He would then be able to get a standard mortgage for the outstanding amount, subjects to income/credit history etc?

silvercar

diyaddictmse said:

silvercar said:

diyaddictmse said:

theoretica said:

Did the ex-partner live in the house until 7 years ago?  That will matter for CGT. As probably would whether they are or were married.

So if they sold the property, paid off the mortgage, sorted tax, he should have over £100k to find somewhere to live, added to housing benefit a possibility for the rent portion of shared ownership?  That might be possible especially with retirement properties, depending on where in the country he needs to be.

Yes, she lived in the house until 7 years ago. They never married. I did wonder about the CGT element. Presumably he'd have to pay it on his share, and she'd have to pay it based on the increase in value over the last 7 years?

Although the house is in her name, he'd have a good case for claiming half its value, since he did loads of building work on it and paid half the mortgage while they were together. This could be one reason why she's happy to let him have half the proceeds.

I've looked into shared ownership but it's problematic, plus he's adamant that he wants to stay in his home. I can see that's looking increasingly unlikely though.

On the face of it, the house is hers, so all the CGT liability is hers. It is calculated on a linear scale with a percentage deducted for the time she lived in it plus a couple of other allowances.

He doesn’t own the house, so has no CGT liability. If he could claim beneficial ownership of a share, he has lived in it as his main residence for the whole time of his ownership, so has no CGT liability. Though claiming a share of the property, reduces her liability.

I've just looked up beneficial interest. If I've understood correctly, it would be in both their interests for him to claim beneficial ownership of 50%. It would reduce her income tax liability as well as her CGT liability. He would then be able to get a standard mortgage for the outstanding amount, subjects to income/credit history etc?

Yes on the income tax and CGT liability, but subject to the revenue accepting it. 

He would only be able to get a standard mortgage if he was on the deeds. The mortgage needs to be in the names of the owners, so if she retained part ownership, she would also need to be on the mortgage. That would help with affordability, but it would tie them together financially.

_Penny_Dreadful

diyaddictmse said:

_Penny_Dreadful said:

There is nothing preventing some one claiming housing benefit or the housing element of universal credit to rent a property from an ex as long as it the tenancy has a commercial basis which this doesn’t as your friend is only paying rent equivalent to the interest only mortgage payment. I also doubt the ex has been complying with any of her responsibilities as a landlord. This sounds like a contrived tenancy in the eyes of the benefits system. 

Unfortunately, Citizen's Advice are certain that if they used to live as a couple in the house at any point in the past, then he's ineligible for housing benefit. This is true even if the tenancy has a commercial basis. They showed him the law (2006 housing act?) and also pointed out that someone went to court over this and lost.

I should point out that he's never previously claimed any benefits, and it was me who encouraged him to go to Citizen's Advice to see if he'd be eligible for any help. I told him to be totally honest about his situation. Even CA were surprised when they found this clause. Until then they were certain he'd be eligible with just a tenancy agreement. Indeed if he were renting from anyone else, he would be.

His ex has essentially just been paying the bills for him, but I think she's had her head in the sand re all the legal/tax ramifications. He just wants to stay in his house whether he gets any help or not. They are smart people, but financially illiterate.

I think there is something lost in translation here.  People can rent from an ex on a commercial, above board basis.  There's nothing in the legislation that prevents it.  The issue your friend is facing is that this is not a commercial tenancy and that the ex suddenly jacking up the rent to make it a commercially viable let will look very suspicious.  

Rather than a Housing Act I wonder if Citizen's Advice directed your friend towards the Housing Benefit Regulations Act 2006.  Again, though, there is nothing in that legislation that specifically says you cannot rent from an ex and claim housing benefit but that it has to be an above board, commercial let.

_Penny_Dreadful

diyaddictmse said:

silvercar said:

diyaddictmse said:

theoretica said:

Did the ex-partner live in the house until 7 years ago?  That will matter for CGT. As probably would whether they are or were married.

So if they sold the property, paid off the mortgage, sorted tax, he should have over £100k to find somewhere to live, added to housing benefit a possibility for the rent portion of shared ownership?  That might be possible especially with retirement properties, depending on where in the country he needs to be.

Yes, she lived in the house until 7 years ago. They never married. I did wonder about the CGT element. Presumably he'd have to pay it on his share, and she'd have to pay it based on the increase in value over the last 7 years?

Although the house is in her name, he'd have a good case for claiming half its value, since he did loads of building work on it and paid half the mortgage while they were together. This could be one reason why she's happy to let him have half the proceeds.

I've looked into shared ownership but it's problematic, plus he's adamant that he wants to stay in his home. I can see that's looking increasingly unlikely though.

On the face of it, the house is hers, so all the CGT liability is hers. It is calculated on a linear scale with a percentage deducted for the time she lived in it plus a couple of other allowances.

He doesn’t own the house, so has no CGT liability. If he could claim beneficial ownership of a share, he has lived in it as his main residence for the whole time of his ownership, so has no CGT liability. Though claiming a share of the property, reduces her liability.

I've just looked up beneficial interest. If I've understood correctly, it would be in both their interests for him to claim beneficial ownership of 50%. It would reduce her income tax liability as well as her CGT liability. He would then be able to get a standard mortgage for the outstanding amount, subjects to income/credit history etc?

On what basis is he going to claim a beneficial ownership of the property?  Yes, the ex could gift him half of the equity but a) that will trigger a CGT liability for her on the 50% she gifts which will be calculated based on the market value of the property not the diddly squat she received in return, b) whilst there is a mortgage secured against the property she isn't gifting half that property to anyone without the lender's consent.

diyaddictmse

_Penny_Dreadful said:

diyaddictmse said:

_Penny_Dreadful said:

There is nothing preventing some one claiming housing benefit or the housing element of universal credit to rent a property from an ex as long as it the tenancy has a commercial basis which this doesn’t as your friend is only paying rent equivalent to the interest only mortgage payment. I also doubt the ex has been complying with any of her responsibilities as a landlord. This sounds like a contrived tenancy in the eyes of the benefits system. 

Unfortunately, Citizen's Advice are certain that if they used to live as a couple in the house at any point in the past, then he's ineligible for housing benefit. This is true even if the tenancy has a commercial basis. They showed him the law (2006 housing act?) and also pointed out that someone went to court over this and lost.

I should point out that he's never previously claimed any benefits, and it was me who encouraged him to go to Citizen's Advice to see if he'd be eligible for any help. I told him to be totally honest about his situation. Even CA were surprised when they found this clause. Until then they were certain he'd be eligible with just a tenancy agreement. Indeed if he were renting from anyone else, he would be.

His ex has essentially just been paying the bills for him, but I think she's had her head in the sand re all the legal/tax ramifications. He just wants to stay in his house whether he gets any help or not. They are smart people, but financially illiterate.

I think there is something lost in translation here.  People can rent from an ex on a commercial, above board basis.  There's nothing in the legislation that prevents it.  The issue your friend is facing is that this is not a commercial tenancy and that the ex suddenly jacking up the rent to make it a commercially viable let will look very suspicious.  

Rather than a Housing Act I wonder if Citizen's Advice directed your friend towards the Housing Benefit Regulations Act 2006.  Again, though, there is nothing in that legislation that specifically says you cannot rent from an ex and claim housing benefit but that it has to be an above board, commercial let.

Sorry, I'm not sure which act Citizen's Advice directed him to. I'll try to find out. But Shelter seems to support their interpretation: 

Renting from a former partner

You can get universal credit to help with renting from a former partner as long as it's a genuine agreement.

You cannot claim housing benefit to pay a former partner if either:

• you used to live as a couple in the home you now rent

• you have a child together who is under 16 and lives with you

I totally agree about how suspicious it all looks. If he were to go down this route, he'd need legal advice and maybe chat to the DWP. He really doesn't wish to do anything dodgy. She would have to get her act together to make it commercial and above board.

In any case, I think it's moot. I don't think she's going to be able to get a BTL mortgage having read all the contributions. Come November, she will want to sell.

diyaddictmse

_Penny_Dreadful said:

diyaddictmse said:

silvercar said:

diyaddictmse said:

theoretica said:

Did the ex-partner live in the house until 7 years ago?  That will matter for CGT. As probably would whether they are or were married.

So if they sold the property, paid off the mortgage, sorted tax, he should have over £100k to find somewhere to live, added to housing benefit a possibility for the rent portion of shared ownership?  That might be possible especially with retirement properties, depending on where in the country he needs to be.

Yes, she lived in the house until 7 years ago. They never married. I did wonder about the CGT element. Presumably he'd have to pay it on his share, and she'd have to pay it based on the increase in value over the last 7 years?

Although the house is in her name, he'd have a good case for claiming half its value, since he did loads of building work on it and paid half the mortgage while they were together. This could be one reason why she's happy to let him have half the proceeds.

I've looked into shared ownership but it's problematic, plus he's adamant that he wants to stay in his home. I can see that's looking increasingly unlikely though.

On the face of it, the house is hers, so all the CGT liability is hers. It is calculated on a linear scale with a percentage deducted for the time she lived in it plus a couple of other allowances.

He doesn’t own the house, so has no CGT liability. If he could claim beneficial ownership of a share, he has lived in it as his main residence for the whole time of his ownership, so has no CGT liability. Though claiming a share of the property, reduces her liability.

I've just looked up beneficial interest. If I've understood correctly, it would be in both their interests for him to claim beneficial ownership of 50%. It would reduce her income tax liability as well as her CGT liability. He would then be able to get a standard mortgage for the outstanding amount, subjects to income/credit history etc?

On what basis is he going to claim a beneficial ownership of the property?  Yes, the ex could gift him half of the equity but a) that will trigger a CGT liability for her on the 50% she gifts which will be calculated based on the market value of the property not the diddly squat she received in return, b) whilst there is a mortgage secured against the property she isn't gifting half that property to anyone without the lender's consent.

I don't think it would be a gift. I think he would have a valid claim because he's paid half the mortgage and made massive improvements to the property (he's a builder). If it came to court I think he'd win, but it seems to be beneficial to her to just accept this claim. I don't know enough about tax/legal matters to say confidently that it wouldn't be a gift though. And as you say, there is then the issue of the lender's consent.

diyaddictmse

I just want to say how grateful I am to everyone who's contributed here. My friend's situation is certainly difficult, but I know so much more about where he stands and what direction to take. So thank you all.

_Penny_Dreadful

diyaddictmse said:

_Penny_Dreadful said:

diyaddictmse said:

silvercar said:

diyaddictmse said:

theoretica said:

Did the ex-partner live in the house until 7 years ago?  That will matter for CGT. As probably would whether they are or were married.

So if they sold the property, paid off the mortgage, sorted tax, he should have over £100k to find somewhere to live, added to housing benefit a possibility for the rent portion of shared ownership?  That might be possible especially with retirement properties, depending on where in the country he needs to be.

Yes, she lived in the house until 7 years ago. They never married. I did wonder about the CGT element. Presumably he'd have to pay it on his share, and she'd have to pay it based on the increase in value over the last 7 years?

Although the house is in her name, he'd have a good case for claiming half its value, since he did loads of building work on it and paid half the mortgage while they were together. This could be one reason why she's happy to let him have half the proceeds.

I've looked into shared ownership but it's problematic, plus he's adamant that he wants to stay in his home. I can see that's looking increasingly unlikely though.

On the face of it, the house is hers, so all the CGT liability is hers. It is calculated on a linear scale with a percentage deducted for the time she lived in it plus a couple of other allowances.

He doesn’t own the house, so has no CGT liability. If he could claim beneficial ownership of a share, he has lived in it as his main residence for the whole time of his ownership, so has no CGT liability. Though claiming a share of the property, reduces her liability.

I've just looked up beneficial interest. If I've understood correctly, it would be in both their interests for him to claim beneficial ownership of 50%. It would reduce her income tax liability as well as her CGT liability. He would then be able to get a standard mortgage for the outstanding amount, subjects to income/credit history etc?

On what basis is he going to claim a beneficial ownership of the property?  Yes, the ex could gift him half of the equity but a) that will trigger a CGT liability for her on the 50% she gifts which will be calculated based on the market value of the property not the diddly squat she received in return, b) whilst there is a mortgage secured against the property she isn't gifting half that property to anyone without the lender's consent.

I don't think it would be a gift. I think he would have a valid claim because he's paid half the mortgage and made massive improvements to the property (he's a builder). If it came to court I think he'd win, but it seems to be beneficial to her to just accept this claim. I don't know enough about tax/legal matters to say confidently that it wouldn't be a gift though. And as you say, there is then the issue of the lender's consent.

The mortgage is interest only though so he hasn’t contributed towards any capital repayment of the mortgage because there hasn’t been any. If he’s made capital improvements then he could have a case but it’s not going to be resolved by November when the mortgage lender comes knocking for that £60k that’s due. 

I think your friend might have to accept that he will be moving. Perhaps there’s social housing specifically available for over-55s that might be available to him.