Mum and Dad need to get with it

Mum and Dad need to get with it   

Parents who help their children get on the property ladder are being urged to adopt a more professional approach when it comes to handing over the cash. 

Faced with high rental costs and soaring property prices, more parents are dipping into savings or releasing capital from their own property to support the next generation.  Research by Legal & General estimates that a massive £6.3bn was provided last year by the Bank of Mum and Dad – or BoMaD - as it’s known.  The figure effectively makes BoMaD the 11th largest mortgage lender in the UK, based on rankings compiled by UK Finance, the collective voice for the banking and finance industry.

When the money was handed over, 59% received it as a gift with no requirement to pay it back, and 14% received a mix of gift and loan. Only 6% were charged interest and only 8% of those doing the lending wanted an equity stake in return for their contribution.

But with the average contribution of families and friends now standing at a massive £24,100 – and £31,000 in London – it can prove a minefield if it’s not clear whether it’s a gift or a loan, covered by an agreement in writing.  And while parents may be happy to support their own children, if the contribution ends up with someone outside the family, it’s likely to cause additional problems when there are considerable sums involved.

That situation was played out in the Court of Appeal recently, when a mother tried to secure the return of the contribution she had made to her son’s property purchase, after he died leaving everything to his wife.  In Farrell v Burden, Mrs Farrell loaned her son £170,000 in 2005, and he repaid £90,000 later that same year, but with no further capital sums or interest paid after that.  When he died 11 years later, leaving nothing to his mother, she took action to recover the outstanding amount she said was due from his estate.

But his widow, Ms Burden, claimed that the money had been given to the couple and in the absence of any documentation, the court said the payment was a gift in the eyes of the law.  Mrs Farrell was ordered to pay the costs of the estate in the action, reportedly around £100,000, as well as losing her claim for the money.  While she appealed the case, when it reached the Court of Appeal, they upheld the judgement on the grounds of lack of evidence, as she had not asked her son or his wife to sign anything that would support her claim. 

Explained property legal expert Richard Knight of solicitors Gamlins Law: “We are seeing more parents stepping in where they can afford to support their children in buying a property, but that is giving rise to problems along the line, with more challenges to estates or worries over divorce settlements, when the terms may have been discussed, but not clearly set out in writing.  While the cost of preparing such agreements may seem unnecessary in the happy situation of handing over the cheque to help children onto the property ladder, the potential costs of litigation further down the line can be considerably more than the original loan – as happened with Mrs Farrell.”

When parents contribute money to the purchase of a property by a child and partner there are several scenarios: the payment might be a gift to the child, it might be a gift to the child and partner; it might be a loan to the child or a loan to the child and partner; or it may be that the parents intend to be entitled to a share in the property.  Whether to avoid later disputes, or simply to resolve any unclear thinking at the time, makes it vital to have a written record of what was intended.   

Such documentation is not just important for setting out a loan to ensure money is repaid, it is equally important in setting out where it has been made as a gift.  For inheritance tax planning purposes, documentation to support when the money was paid and confirming that it was made with the intention of being a gift may be crucial, if it is to take advantage of the rules concerning such gifts when inheritance tax is calculated on the death of the giver. 

 “The sums involved, and the complexity of property purchases, make it essential to get the right advice.  None of the Top Ten mortgage lenders would hand over the cash without having their interests properly protected and the BoMaD need to take the same approach,” added Richard.

Web site content note: 

This is not legal advice; it is intended to provide information of general interest about current legal issues.

Landowner carries the can on illegal waste

Landowner carries the can on illegal waste

An illegal waste wood stockpile on land in Devon has seen the landowner prosecuted and left with the clean-up bill after being held responsible for knowingly permitting the tenants’ activities.

The tenants had leased the land for a wood recycling business, but none of the material that arrived on the site ever left, creating a 10,000-tonne stockpile covering the area of a football pitch.  When the stockpile was destroyed in a massive fire which burned for five days, the Environment Agency prosecuted not just the tenants, but the landlord as well.

             

The action saw the landowner, Anthony Joyner from Totnes, fined £3,600 and ordered to pay £5,000 costs after pleading guilty to knowingly permitting the keeping of controlled waste on land where no environmental permit was in force, an offence under the Environmental Protection Act 1990.  The Fire Service fought the blaze for five days and Joyner was ordered to pay the Devon and Somerset Fire and Rescue Service compensation of £4,250. 

The site was a disused plant nursery which had a 1,000-tonne waste exemption.  Waste disposal or recovery operations are either regulated, requiring an environmental permit, or exempt which do not require a permit, but are generally small-scale waste operations with a set limit, as in this case.  If the exemption limit is exceeded on a site and no permit is obtained, the operator will be in breach of the Environmental Permitting (England and Wales) Regulations (2016) and have committed an offence.  

Waste movements must be recorded and while there was no audit trail for most of the waste wood at the Cockwells Nursery site, the Environment Agency managed to obtain enough waste transfer notes from local companies to prove the site’s exemption limit of 1,000 tonnes had been exceeded and the business was operating illegally.

Said Dafydd Roberts, Regulatory expert with Gamlins Law : “We are seeing a much tighter approach to pollution control and performance in the waste sector.  The Department for the Environment, Food & Rural Affairs (Defra) has recently announced a strengthening of the Environment Agency’s powers to raise standards within waste processing.  They are also consulting on changes to the waste exemption regime to prevent it being used to hide waste crime, so things will only become tighter.

“This is not the first time that a landlord has been held responsible for knowingly permitting illegal activities by an operator and the courts are making it clear that knowingly means simply knowing that a waste operation is being carried out, not necessarily that it is unlawful, and permitting means failing to prevent, so ignorance is no defence.”

He added: “Even tougher for landowners is that where an occupier stops trading and abandons waste, then there may be a further offence of knowingly permitting the storage of that waste, which continues unless and until the site is cleared.  Regulators have powers to serve notices on landowners requiring the clearance of unlawfully deposited or stored waste and failure to comply can also result in prosecution.

“It means that any prospective or existing tenants who are operating in any waste-related activity need to be subject to due diligence beforehand and then monitored carefully during the tenancy.  All licences and permits need to be checked at the outset, and then regularly reviewed, including being sure that proper auditing of waste movements is going on.  If waste is coming in, but not going out, then warning bells should sound.”

Web site content note: 

This is not legal advice; it is intended to provide information of general interest about current legal issues.

A quick guide for first time buyers

A quick guide for first time buyers

Buying a home is stressful, especially for first-time buyers, so it's wise to do some research to ensure you know exactly what you’re getting yourself into. Conveyancing is the term that refers to the legal process of transferring one person's property (the seller), to another (the buyer).

What does the process involve?

Put simply; this is what conveyancing looks like from start to finish:

• Get your mortgage sorted out before you start looking, so you know what your budget is.
• Find the property you want.
• Put in an offer i.e. tell the seller what you're willing to pay for the property. This is also the time to raise any conditions you have.
• The offer's accepted. At this point, you'll need a survey to check the property's condition, and your solicitor will review any legal issues.
• The checks will include a wide range of examinations, including the structural integrity of the property, whether there’s any signs of subsidence, damp or damage, and whether there are any existing plans for the immediate area that may impact the property.
  Your solicitor will also check with the local authority, utilities and environmental department to find out if there are common drains that serve multiple properties, there is any history of land contamination, or if you are responsible for any shared public access points. They’ll also look at the deeds and boundaries to see if there are any disputes with neighbouring properties. If everything comes back okay, you can move onto the next level – buying your home.
• Exchange. This is when you pay your deposit, which means you can't back out of the deal without losing a lot of money.
• Completion: Now you hand over the rest of the money for the house in exchange for both the keys and the deeds. At this point, the property is legally yours.
  
  

You should note that nobody is legally bound to complete the transaction until contracts are exchanged.

Top Tip: As part of the process, ask for a list of fixtures and fittings the seller is willing to include within the cost of the property. Get this in writing. That way you'll manage your expectations and won't get a nasty surprise upon arrival.

What is Gazumping?

This term refers to another buyer offering more money to the seller than you have, and the seller goes back on the deal you made. Sadly, you can't legally protect yourself from this happening if this occurs prior to exchange. However, it's always worth asking the seller to take the property off the market as part of your original offer. This rapidly reduces the likelihood of another buyer submitting a higher price.

What is Gazanging?

Gazanging is when the seller cancels the sale to stay in their property. This could occur when the market price shoots up as there's a good chance the seller will make more money if they wait to sell in a few months’ time.

In the unfortunate even that you suffer from either gazumping or gazanging, you'll probably lose a lot of money, especially if this occurs just before the point of exchange. Typically, both your solicitor and surveyor will have carried out a lot of work, costing you both your precious time and money.  All you can do is act quickly when it comes to finalising the offer and exchanging the contracts. This will probably involve working with your solicitor and mortgage lender to speed things up.

Finding a mortgage and doing all the checks
If you are buying a property then make sure you’ve got your finances in place first. If you go house hunting before you’ve gone mortgage hunting, you’ll complicate the process, especially if you don’t get the full amount you need and have to scrabble around to make up the shortfall.  Don't automatically go with the first lender you find; mortgage products change almost daily. There are so many mortgage lenders out there, all hustling for your business, especially if you've got an excellent credit score. It's almost inevitable that another lender will match your bank's offer, or even try to tempt you with a better deal.

Always get a personalised mortgage illustration: this should highlight the important features of your mortgage. Taking out this kind of loan is a massive commitment, so do your due diligence and don't sign up for anything you'll regret later on. Remember, a mortgage typically lasts for 25 years, so this is a long-term commitment and not something to be rushed into without a lot of careful thought.

Once you’ve got your finances straight, it’s time to…

Choose Your Conveyancing Specialist

Licensed conveyancers are solicitors who specialise in property law. They'll handle all the paperwork and conduct the necessary searches to satisfy both the Land Registry and local council. They'll also:

• Draft the contract
• Manage the exchange of money between the buyer and the seller
  
  

Top Tip: Budget up to £1,500 for hiring a conveyancing solicitor.

It's recommended that you find a legal expert who is familiar with conveyancing early on. This makes the process a whole lot smoother and helps to ensure everything goes through as quickly as possible.

Avoiding septic tank blockages when it comes to selling

Avoiding septic tanks blockages when it comes to selling  

 

This year’s housing market has been characterised by slumping prices and sluggish sales in many areas, posing a challenge to would-be sellers looking to move on.  

And for those who are not connected to mains drainage, generally in rural areas, there’s an added challenge, with many unaware of stricter rules regarding septic tank systems and soak-aways, which must be dealt with as part of the conveyancing process.  

According to Dawne Jenkins, our, property law expert “Property owners with a septic tank or small sewage treatment plant could find themselves with a headache if they aren’t up to date on their responsibilities and meeting the latest legal requirements.” 

Those are set out in the Environmental Permitting (England and Wales) Regulations 2016 and the Small sewage discharges in England: general binding rules. For homeowners, the important points relate to the amount of waste being discharged, and where it is being discharged.

If it’s domestic waste, you can discharge up to 2 cubic metre per day to the ground via a septic tank or small sewage treatment plant.  If it’s discharging to a river, stream or other surface water, then up to 5 cubic metres per day is permitted, but only if a small sewage treatment plant is being used. 

Any septic tank discharging to surface water will have to be replaced or upgraded by the end of 2019, or when the property is sold, if that happens earlier.

The Environment Agency has provided a simple calculator to enable homeowners to work out their estimated daily discharge, which is based on the size of the property. 

If a system is being installed or upgraded, then it must be to British Standard BS EN 12566 and both planning permission and building regulations approval will be needed.  Approval will not be given if public sewers are accessible within 30 metres.  

Dawne Jenkins added: “These approvals apply to any installations from 2015 onwards, so any system that has been upgraded in that time without planning permission and building regulations approval would have to apply for permission retrospectively, and that’s going to cause delays and problems if it is only discovered during the sale process.

“When selling, the home owner is legally obliged to tell the purchaser if sewage is being handled by a private drainage system, with a written notice that sets out details of the waste water system, its location and the maintenance requirements.  There’s a legal responsibility to ensure the system is in good working order and does not cause pollution, so it makes sense to check everything is OK on a regular basis, and certainly before putting the property on the market. It is also important to be sure that all rights and obligations are in place if any part of the system is located on someone else’s property, as any gaps would be thrown up as part of the conveyancing process.” 

The discharge limits do not apply to cesspits, as they are self-contained tanks, but cesspits must be maintained and emptied regularly by a registered waste carrier.

 

This is not legal advice; it is intended to provide information of general interest about current legal issues.

House sellers are facing testing questions

House sellers are facing testing questions

 

Springtime is traditionally the busiest time for the property market, but with a knotty problem affecting more homes than ever, it’s worth doing some horticultural homework before you start, whether you’re buying or selling. 

Japanese knotweed is a highly invasive, aggressive and destructive plant, able to grow as high as four metres in just a few months and with roots that can spread seven metres.  It’s non-native with no natural predators, and is able to cause significant structural damage, growing through asphalt and other hard surfaces, often compromising building structures.   Getting rid of it is a costly and time-consuming business, involving specialist waste disposal, because simply digging up the roots is not enough to kill it. 

You can be fined up to £5,000 or sent to prison for two years if you allow contaminated soil or plant material from Japanese knotweed to spread into the wild, and now a landmark court ruling has found that a landowner is responsible if they do not prevent the plant from spreading from their land to adjoining properties.  

The case involved a group of homeowners in South Wales, who took action against Network Rail after Japanese knotweed grew into their garden from adjoining railway sidings.  The knotweed had been there for at least 50 years and had been actively treated since 2008, to ensure visibility for trains on the line.  In weighing up the claims of the homeowners, the judgement considered the extent of nuisance suffered, and found in their favour, saying that the presence of Japanese knotweed was enough, without any physical damage, as it had the potential to seriously affect the market value of a property. 

Many mortgage lenders restrict their lending on properties that are affected and homeowners may have difficulty in selling, or find the value of property reduced by as much as 50%. 

There have been few previous rulings involving Japanese knotweed infestations, and the outcome is likely to put extra pressure on property owners to control the plant, and have a significant impact on larger land owners and those responsible for tracts of public land.

Glyn Morrice Evans  of Gamlins Law commented:  “If you’re not a skilled gardener, it’s worth getting to grips with the Japanese knotweed identification sheet.  If you can see it growing on your property, then take steps to eradicate it.  If it’s growing on neighbouring properties, speak with your neighbours, and if they don’t tackle the problem then it’s worth considering action. 

“If you are successful with a nuisance claim, you can push for neighbours to undertake a five-year eradication programme and ask for a guarantee from the specialist company involved, as well as seeking compensation, if there is evidence it has travelled through your boundaries.” 

He added:  “Taking action to protect what is probably your biggest asset is a simple but sensible option, whether you’re buying, selling or staying put.  These days, when you sell a property, you will be asked whether Japanese knotweed has been found on the property and the reply will be included in the comprehensive pack of buyer’s information that lawyers compile during the conveyancing process.”

Web site content note: 

This is not legal advice; it is intended to provide information of general interest about current legal issues.

The devilish detail on inheritance tax

By tax and inheritance specialist Carolyn Snellgrove with Gamlins Law

When Chancellor George Osborne announced significant changes to inheritance tax (IHT) in last summer’s Budget speech, the move had been much anticipated. But rather than simply raising the tax-free threshold for everyone, he announced a new allowance specifically for those who own their home and want to leave it to their children.

For these homeowners, a transferable residence nil rate band allowance (RNRB) will be introduced from April 2017.  However, as is often the case with such announcements, the devil is in the detail and following last summer’s announcement, the Treasury have tried to address a number of objections to the Chancellor’s original proposals.

As a result, the Government came back with amendments to the Finance Bill to clarify the treatment of family homes left in trust, to extend the scope of the RNRB to include gifts to the spouses and civil partners of descendants, and to extend the RNRB to include situations where someone has had to downsize or to sell their home completely, perhaps because they had to move to a residential home.
The treatment of even simple trusts under the RNRB rules is complex and anyone who owns their home, has a family and is concerned about inheritance tax, should check how the new rules impact upon their will, if they have one.

And, as this is going to be a gradual change, those with estates in excess of the current £325,000 per person threshold should still be working with their advisors to see how best to manage and mitigate values in the transitional period.

For anyone with high value estates, the new RNRB will be tapered, so estates worth more than £2.35m will not benefit.  That means estate planning as usual, with the agenda of lifetime gifts and other tax mitigation worth considering.

There may be further clarification of the legislation before the Finance Bill becomes law, but looking in more detail, what do the new IHT rules mean for you?

An overview of the RNRB :

Under the new rules, when a person leaves a residential property to direct descendants there will be an additional nil-rate band for inheritance tax purposes.  It is attributable only to residential property, or the proceeds of property after down-sizing (of which, more later) and it will be introduced from April 2017, increasing each year through to 2020.   The property must have been a residence of the tax payer at the time of their death and only one property will qualify for the allowance so, if they had more than one residence in the UK, their executors will have to elect which one is to receive the RNRB.
Direct descendants include natural and adopted children, grandchildren and remoter descendants.  It also includes step children and foster children, and the spouse or civil partner of a living or dead direct descendant, as long as any surviving spouse or civil partner has not remarried.  For the purposes of the RNRB, adopted children are treated as being the children of both the adoptive and the natural parents.  Direct descendants do not include brothers and sisters or nieces and nephews.

Tax year	Residential Nil Rate Band
2017-18	£100,000
2018-19	£125,000
2019-20	£150,000
2020-21	£175,000 and then subject to indexation

The current nil-rate band of £325,000 per person will continue to be available for the same qualifying range of assets as at present, and without restriction on who inherits the assets.

So, from 2017, a married couple or civil partners who satisfy the criteria on the ‘property passing to descendants’ rule will have a potential combined allowance of £850,000 rising to £1 million by 2020; up from the current level of £650,000, with a resulting saving of inheritance tax of £140,000 at the maximum level.  A single person satisfying those criteria will have a £500,000 allowance by 2020, up from £325,000, giving a potential tax saving of up to £70,000.

The new residence nil rate band, like the current nil-rate band, will be transferable to a surviving spouse or civil partner, if unused on the death of the first to die, as long as the first to die owned the property or a share in it.

High value estates will not qualify for the additional relief, which will be tapered away for estates valued at over £2m, at a rate of £1 for every £2 over the £2m threshold. It means that the RNRB will be completely lost on an estate worth more than £2.2m in 2017/18, rising to £2.35m from 2020/21.
The transferable allowance can be claimed even where a spouse dies before April 2017 and in this case, the property does not have to have been held in joint names.

 Inheritance tax will continue to be charged at a rate of 40% on the value of an estate above any tax-free threshold.

Downsizing:

People will be allowed to sell a larger house and retain the relief from inheritance tax, to encourage down-sizing and free up larger properties by older owners.   There can be any number of downsizing moves between 8 July 2015 and the date of death, and downsizing can also include disposing of part of a property, including land occupied and used as a garden or grounds or a share in it.

The amount of RNRB available after downsizing is calculated so the person should not lose out on the RNRB by the move.  They receive at least the same proportion of RNRB on death, as they would if they had died at the time of downsizing.

But it will apply only to reduce tax payable by an estate on death; it will not apply to reduce the tax payable on lifetime transfers that are chargeable as a result of death.  So if a property or the sale proceeds are given away within seven years of death, whether it is to a direct descendant or not, the RNRB will not be available to offset against that gift, although it may be available to set against the estate itself.  Again, this is rather complicated and requires specialist advice.

Property left in trust

Following the Budget announcement, a number of queries were raised on the handling of property that was held in trust.  There are many practical reasons why a person might want to leave their estate, or part of it, in a trust, and tax saving is probably the least common reason for doing so.  A person who is in a second marriage and who wishes to provide for their second wife or husband whilst ensuring that children from the first marriage benefit might leave their estate on trust for the use of their wife or husband during their lifetime and then to pass to the children.  Another example is where very young children inherit when a parent dies prematurely, as the estate would be held on trust for them until they are old enough to manage their inheritance.  Similarly, if a child is incapacitated or disabled in some way, it may be best to leave assets in trust and appoint someone to look after their money.

The RNRB will be available where beneficiaries of a trust are direct descendants and the trusts provide an absolute right to benefit, or where a disabled person is the main beneficiary.
However, in the case of any so-called discretionary trust, where payments of income or capital are made at the discretion of the trustees or are conditional on certain circumstances, for example reaching a certain age, RNRB is not available.   The position is complex and for anyone with any form of trust in their will, it’s worth reviewing the situation now to see if you’re still going to be best served by your current arrangement.

Some examples of how and when the new Residential Nil Rate Band will work in practice:

Single, married or civil partners, with no children:

 No RNRB is available on the family home, as it will not pass to direct descendants.  Anything over £325,000 per person will be taxed.

All assets held in cash, investments or other non-property, none relating to sale of previous family home:

 No RNRB is available as nothing relates to a family home.  At death, only the existing £325,000 per person transferable nil rate band will apply, with anything over that being subject to IHT.

All assets held in cash, investments or other non-property, some relating to sale of previous family home:

 If the downsize took place after 8th July 2015, RNRB will be available at the same percentage as the sale value of the family home, or the maximum current RNRB, whichever is the lower, if this element is left to direct descendants.  In addition, any unused part of the £325,000 per person transferable nil rate band will be available to offset against the property value.

Transferring the RNRB to other assets:

 If a property is worth less than the full RNRB, any unused RNRB allowance cannot be transferred to offset against other assets.

Not living in a property owned at death:

 Not living in a property may affect the RNRB.  If job-related accommodation is provided and a property is the only one owned at death and it has been lived in as home at some point, or it was planned to do so in future, the allowance will be available, similar to the way only or main residence relief can be claimed for capital gains tax purposes in such circumstances.

Web site content note:  This is not legal advice; it is intended to provide information of general interest about current legal issues.

Landlords lose and whiplash gets cracked in Osborne’s autumn budget

Landlords lose and whiplash gets cracked in Osborne’s autumn budget 

Backtracking on the contentious cuts to Working Tax Credits caught the headlines when Chancellor George Osborne delivered his Autumn Budget statement, alongside a boost to building and good news for first time buyers. 

The Chancellor announced the allocation of £4 trillion of public spending over the next four years, with an £8 billion reduction in borrowing now being forecast and a predicted surplus of £10 billion by 2019-20. 

In a package of measures designed to help with housing, Mr Osborne announced a doubling of the housing budget to £2bn a year, to fund 400,000 new affordable homes by the end of the decade, to both buy and rent.  Help to Buy has been extended with restrictions removed on shared ownership schemes, so more people can get on the housing ladder.  There’s also a new Help to Buy equity loan scheme that will give London buyers 40% of the home value from early 2016, doubling the 20% offered under the current scheme.

But for second home owners and landlords looking to add buy to let properties to their portfolio, the Chancellor dealt another blow by announcing a massive 3% extra levy in land tax stamp duty on such purchases with effect from April 2016.  The money raised will be used to fund investment in local communities.   This follows on the heels of his last Budget when he announced that there would be a cut in tax relief on mortgage interest for landlords.  Tax relief is set to be gradually restricted to the basic rate, currently 20%, where landlords had previously been able to offset mortgage interest against top rates of tax.  The shift was to tackle what the Chancellor called an “unfair advantage” for landlords over homeowners.   

Landlords have been in the Chancellor’s sights for some time, with high levels of buy to let pushing up house prices and reducing affordability for first time buyers.  Buyers of second homes will also be caught by this new rate of stamp duty on their future purchases.  With the policies he set out today, it’s likely to reduce some heat in the housing market, once the new stamp duty level kicks in.

The other sting in the tail for landlords and others making capital gains is the shift towards faster digital taxation processes.  Mr Osborne has ambitions to build one of the most digitally advanced tax systems in the world and one result of this will be faster collection of capital gains tax, which is payable on any gain made by a landlord or second home owner on a property when they sell up.

The Chancellor also announced that people will no longer be able to get cash compensation for minor whiplash claims, in a crackdown designed to cut the number of fraudulent claims and likely to lead to reduced motor insurance premiums.   Instead, such injuries are expected to go to the small claims court with the upper claims limit increased from £1,000 to £5,000.

Underused courts will also be closed, saving £700m which will be used towards the introduction of new technology into the court service.

Web site content note: 

This is not legal advice; it is intended to provide information of general interest about current legal issues.