In March of this year, when the first lockdown measures were introduced by the Government, many couples were faced with an ultimatum: either move in together or isolate separately, not knowing when restrictions might be lifted. Little did we know then that the strictest measures, requiring different households to maintain social distance, would last for several months. Some couples who chose to lockdown together may have seen the timeline of their relationship accelerated as they found that they rather enjoyed their new co-habitation arrangement. For others, including long-standing couples, lockdown may have had the opposite effect, triggering the breakdown of the relationship. Whilst everyone will have had a unique experience of lockdown in the UK, a number of key themes are emerging which affect all cohabitating couples.
Cohabitation
Whereas choosing to live with another person under ordinary circumstances is typically a carefully thought out step, lockdown meant that couples were thrown together quickly with little opportunity to plan for what this might mean long term. Living together raises a number of questions that couples need to work through, for example, how living expenses, such as rent or mortgage repayments, utility bills and the weekly food bill should be met and divided between them.
Particular care should be taken when one party to the relationship is the property owner. It is extremely important to document how contributions towards living expenses should be treated to prevent the non-owning party from gaining unintended rights in the property. A co-habitation agreement can be a particularly useful tool for setting out each party's rights and obligations with the aim of protecting both parties in the event of a breakdown of the relationship. If intentions are carefully recorded from the outset this can avoid the need for difficult conversations later down the line and expensive legal bills if things go wrong. Differing perceptions, the passage of time, conflicting documentation and becoming engaged to marry can all become an issue.
It is easy and straightforward to enter into a cohabitation agreement and it can be entered into at any time during a relationship. These agreements are increasingly being entered into by unmarried couples wishing to clarify their understanding of their living arrangements and for those who wish to regulate their financial arrangements both during the relationship and beyond. These agreements can be flexible, bespoke documents which, provided they are carefully drafted, are likely to be binding. We can provide practical and constructive advice on the various complex issues which can arise for cohabitees.
Co-ownership
The increased time at home has been a blessing for some but, for others, lockdown has highlighted inadequacies in their current living arrangements, with lack of outdoor space being a particular challenge for many. Any thoughts of a potential move will only have been amplified by the Government's recent announcement of a 'Stamp Duty Land Tax (SDLT) holiday' until March next year which means that first time buyers will only start paying tax on property above £500,000 and almost everyone buying property above £125,000 should see a reduction in the SDLT they pay. Many couples may be taking this as the opportunity to purchase their first home together.
In terms of financing the first or next step on the property ladder, many couples will be looking to parents to assist with funding the purchase. Parents and grandparents could seek to take advantage of falls in asset values caused by the pandemic and "lock in" current tax rates by passing on wealth to the next generation. The recent Government announcement regarding the planned review of capital gains tax has only added to the uncertainty around the future tax landscape in general with many therefore looking to bring forward any planned gifting or broader tax planning.
Thought should also be given to how any property will be co-owned between the parties. Will contributions towards a deposit from a family member be treated as a loan or a gift and to one or both of the parties? Either way this should be formally documented to ensure that all parties are protected (particularly in the event that the relationship were to breakdown). Alternatively, the family member may instead wish to take an interest in the property, which could enable them to benefit from any increase in value, for example. This might necessitate the preparation of a declaration of trust, designed to set out each party's interest in the property, including any profit on a future sale. Our Tax, Trusts and Succession and Private Property teams work closely together to ensure that property purchases are carefully structured and interests protected.
With regard to how the purchase is structured between the couple themselves, there are two ways in which property can be jointly owned, as 'joint tenants' or 'tenants in common'. One of the key differences between the two is how each party's share would pass on death. In the case of joint tenants, the deceased's share of the property would pass to the surviving co-owner on death. In contrast, if the property is purchased as tenants in common, each party will own a distinct share of the property which they are able to leave to their chosen beneficiaries under a will.
Touching briefly upon wills, it is a common misconception that assets (such as a property) will automatically pass to your partner on death. Unless you are married, if you have no will in place, then any assets in your sole name will pass to your next of kin (for example your parents if you have no children) rather than to your partner on death. It is therefore important to think about your succession plan and put a will in place, particularly when you are moving in with your partner.
Breakdown of relationships
Unfortunately, for some couples, the lockdown period has been a particularly testing time for their relationship. Working from home together, not being able to go out and see family and friends and also, in some cases, home schooling children, has led to an added strain for many. This enforced period of time together may have exacerbated previous relationships tensions or introduced entirely new issues into the relationship dynamic meaning that some cohabitees wish to separate. We can help guide you through this difficult process and in the case of unmarried couples, provide assistance for property claims and financial claims on behalf of children. It is important to be aware that whilst a separating cohabitee may be entitled to financial support for any children of the relationship (child support or other financial claims on behalf of a child), there is no right to maintenance from the other party if there are no children. It may be, however, that cohabitees will be able to pursue claims against one another in relation to property, which highlights the importance of recording your original intentions in relation to ownership issues from the start as advised above. We can also advise on all child-related issues, such as living arrangements and upbringing including which school children should attend, for example.
We strive to achieve the best possible outcome for all of our clients and their children. It is important to take legal advice from the outset, or if the relationship has already broken down, then to seek assistance at the earliest opportunity. This will enable you to understand your position and help address any concerns you may have before working towards an effective solution and outcome for all parties concerned.
It is understandable that in the midst of relationship breakdown, a pandemic and economic uncertainty, tax is the last thing on anyone's mind. However, if there is only one thing a separating couple can agree on, it will probably be to both walk away with more in their pockets. To achieve this, well-rounded advice is vital, and we are proud as a full-service law firm that collaboration between our Family, Property and Tax specialists comes second nature.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
