Due to the COVID-19 pandemic, the government announced in July 2020 that, until 31 March 2021, home buyers wouldn’t need to pay stamp duty on the first £500,000 of a purchase price.
This meant a saving of up to £15,000. The government later extended the tax holiday until 30 June 2021 and then again extended the freeze on the first £250,000 until 30 September 2021. Conveyancers up and down the country have, therefore, been inundated with new work and the housing market really has boomed.
It is fair to say that with the stamp duty holiday, many people have purchased houses with partners whereas they perhaps wouldn’t have been in such a rush to do so had it not been for the stamp duty incentive. This has meant, therefore, that there will inevitably be numerous couples who have rushed into purchasing a property to ensure that stamp duty isn’t payable.
Whilst this is an extremely exciting time for couples who may not have lived together before, the implications of cohabitation may not have been carefully considered. In the event of a relationship breakdown, cohabiting couples do not have the same extensive claims that spouses have against one another. However, the key claim that one party may raise is in relation to property interests. It is imperative, therefore, that when a couple purchase a property together, if there are any unequal contributions to the purchase price or payments towards the property, these are carefully recorded and protected.
If, for example, one party were to be responsible for the payment of the deposit then it would be fair to assume that in the event that the relationship broke down then they would want, at the very least, to ensure that they receive the initial deposit back. However, if the property was registered in the parties' joint names then this initial deposit won’t have been protected. Property interests are simple – they follow the legal title of the property. Therefore, if a property is registered in the parties' joint names it is assumed that it is owned equally and if the property were to be sold the starting position is therefore an equal distribution of the net proceeds of sale.
Where parties jointly own a property having made unequal contributions, the appropriate mechanism to preserve their respective interests is a Declaration of Trust, effectively creating a trust in respect of the property to define their shares. This is a legally binding document which will be registered with the Land Registry upon the completion of the property purchase.
It is also advisable for cohabiting couples to enter into a Cohabitation Agreement. A Cohabitation Agreement will record arrangements between two or more people who have agreed to live together, as a couple or otherwise. It records each party’s rights and responsibilities in relation to the property where they live or intend to live together, financial arrangements between them, both during and following cohabitation, and the arrangements to be made if they decide they no longer want to live together.
A Cohabitation Agreement is therefore significantly more comprehensive than a Declaration of Trust. In addition to setting out your interests in the property, it can be definitive as to exactly what is your separate property (including chattels, bank accounts, pensions and investments) and make it clear that these assets will remain your own in the event of separation. It can also deal with the outgoings on the property and how these are to be treated.
It is important that cohabiting couples do carefully consider the ramifications of their cohabitation at the outset. If further advice is required in this regard or if you would like to understand more about Cohabitation Agreements then please do not hesitate to contact Kate Barlow or any member of the Family Team.
