Can I Embark on Equity Release with this Problem?

Cad169

Hope someone can help! Bit of backstory…. My ex-wife and I have been divorced for fourteen years but never really settled financially. At the time of divorce, we owned two properties. A property 200 miles away in Dorset that my mother lived in, and was in my ex-wife’s name (for tax purposes), and is now worth £200k (mortgage-free). Upon divorce, that property was transferred from my ex-wife to me (my mother still living there).

Ex-wife was to keep the family home, now worth £500K, but she couldn’t get a mortgage in her name only, so at the time of the divorce, for her and our kids to remain in the family home, I had to remain on the mortgage and the deeds (big mess).

Ten years ago, the ex met someone, moved in with him, and I moved back into the family home, and not long after, paid the remaining £75k mortgage off (leaving both properties mortgage-free).

Five years ago, my mother moved into a home (she has since passed), and my ex, her relationship not having worked out, moved into the Dorset £200k property.

So that’s where we are now. Joint tenants of the family home, with my two children living there and me, and my ex-wife living in the property in Dorset that was originally hers, but has been, since the divorce ten years ago, in my name.

Phew! So now the problem. We are both 70 years old and retired, and living on state pensions only. My ex enjoys living in the house in Dorset that is morally, if not legally, half hers, so she doesn’t pay rent and I don’t see her as a tenant or myself as a landlord. Yup, because we never sorted out a divorce settlement properly (it was mutual and friendly), it’s all a bit of a mess….and now she needs money!

I would like to just give her the house, but with both of us having an interest in the family home, I apparently can’t because of Capital Gains. I have paid a solicitor for advice, but all she could come up with was ‘it’s a mess…. just leave it all as it is’!!

The only way out is either to sell both houses and split everything, but that seems like a nightmare, and with the cost of housing, it won’t give her what she needs, which is cash. Maybe a way out is Equity Release on the property she lives in?

Finally! My question is, can I organise Equity Release on the Dorset property? Will the provider see her as a ‘tenant’…. And is that a block to doing this? What is the legal definition of a tenant? She doesn’t pay rent or anything. The house was originally hers and still is morally, as I am living in the larger family home and I don't pay her rent. She is in my will to inherit the Dorset property, and if I were to pass, in reality she would sell up and return to the family home.

Thanks all.

Keep_pedalling

I am pretty sure you would not be able to obtain ER in these circumstances.

Have you also considered the impact on IHT which will be payable on the first death?

kingstreet

The only way I see this working is her doing a later life mortgage product in her sole name to purchase your equity and buy you out while you do the same on the family home to buy out her share. Somewhere along the line you raise enough to cover both lots of CGT.

Cad169

Thank you so much for the replies….

The Inheritance Tax is not really an issue. If I go first, my ex would move back here to the family home that she is joint tenant of, so the other half of this house would naturally be hers. She would then be liable for IHT on the Dorset property, which is hers by inheritance under my will. But she would still get something from that, even after accounting for the IHT and the small share left after Equity release.

If she goes first, there would not be any IHT on the family home, just what is left from Capital Gains and the tiny share after Equity Release on the Dorset home (and that doesn’t bother me….that house has been a millstone around my neck for over thirty years!).

Keep-Pedalling, is the actual problem, the fact that she is living there? Or that it is effectively a second home? I have read second homes are ok as long as I live there for four weeks a year….we’d just swap for that time!

Kingstreet. Not sure I understand that! How would that produce the cash she needs? We are both not interested in acquiring each other’s property; she just wants cash in her pocket. Could you put a little more meat on the bones as to how that theory works….thanks.

If we can't raise cash on the Dorset property, as a last resort, could we raise cash on the family home?

MWT

https://forums.moneysavingexpert.com/discussion/6670635/can-i-embark-on-equity-release-with-this-problem

How much cash do you need to raise?

silvercar

Other than mentioning that there is no CGT on death, and you should calculate whether there would be any IHT as people often think there will be when their estate is actually under the limit, I’d concentrate on the need to release money now, rather than worry about the future.

There are special rules on CGT exemptions for divorces, so maybe you need to find an accountant to advise you, rather than a solicitor who just shakes their head. Alternatively, there is a fairly active tax board on the forum.

Cad169

Thank you for the replies it
really is appreciated. Neither the IHT nor the CGT are not issues for us. As long
as we have a place to live, that’s all that matters. If either one of us passes, we always have at least one home to turn to, sell the other and pay off either one of the taxes that apply, even considering the small share left after Equity release….or do I have that wrong?

We just need to raise money right now so my ex-wife can have some cash, as, like all pensioners, we are asset-rich but financially poor. I was under the impression that we could use Equity Release to do that.

In answer to Silvercar, I guess we would look to borrow as much as we could now. As stated, if I pass, the Lender would initiate the sale, take their cut, and the remaining share would be used to pay off the tax. My Ex would then trundle up the A303 and live back here. It would be similar for me, just without that damn A303 trip!

My question was, given our circumstances with my ex wife living in what effectively is a second home, and me owning that second home (not her), does anyone think that an Equity Release
application would be successful. And if not, would an application be more
successful on the family home, as we are joint tenants of that….? We would obviously prefer that it was taken out on the Dorset property.

whizzywoo

We took out a Lifetime Mortgage last year, a type of Equity Release. All I have to add for you is that the lenders for this type of mortgage are incredibly picky and fussy. They don't like this, they don't like that, etc etc. We used it to bridge the shortfall on the proceeds of our old house and the cost of a new build home. The amount of stuff they look into was incredible, understandably because they don't want to be left with a white elephant on their hands.

Perhaps you should speak to a mortage adviser who specialises in this type of loan.

kingstreet

https://forums.moneysavingexpert.com/discussion/comment/82019037#Comment_82019037

To be able to do this, you need to get off each other's property and sort the ownership as you do the equity release. As things stand neither of you can raise money on either property due to the current ownership structure. Get advice from a Later Life Lending specialist with the correct permissions.