Tenancy Deposit

Your relative is not required to be on the mortgage if they contribute to the deposit. However, the lender may have specific requirements about who needs to be on the mortgage, especially if the deposit is a significant portion of the property's value. If your relative is not on the mortgage, they won't be responsible for mortgage repayments but should be noted as a co-owner in the property's title deeds if it's a joint purchase. Ensure you have a formal agreement outlining each party's financial contribution and ownership share, such as a declaration of trust to protect both interests.

A tenancy in common allows you and your relative to own the property in distinct shares, which can be unequal and tailored to reflect each party's contribution, such as the deposit made by your relative. Each owner can independently sell or bequeath their share, providing flexibility and protection for individual interests. However, if one of you were to pass away, the deceased’s share would not automatically transfer to the surviving owner but rather according to their will. This structure might be beneficial if you intend to acknowledge your relative's financial input separately while maintaining joint ownership. For more detailed information, you might want to read about tenancy in common.

To protect both your and your relative's interests in the property, you should consider drafting a Declaration of Trust. This document clearly outlines the financial contributions made by each party, including your relative's deposit, and specifies the ownership shares each party holds. Additionally, ensure that your interests as tenants in common are recorded at the Land Registry so that each of your ownership shares is legally recognised. It's advisable to have a cohabitation agreement if you plan to live together, or a property agreement delineating rights and responsibilities. Consulting a solicitor for tailored advice is recommended. For more details on property ownership, see GOV.UK - Joint property ownership.

If your relative helps with the deposit but is not on the mortgage and does not take legal ownership, there could still be tax implications, particularly concerning the gift tax. The money your relative provides could be considered a gift, and depending on the amount, it may have inheritance tax implications if it exceeds the annual gift allowance. Additionally, if your relative later gains a beneficial interest in the property, there might be Capital Gains Tax (CGT) implications when the property is sold. It is advisable to document the arrangement clearly to establish the nature of the contribution and consider seeking advice from a tax advisor. For detailed information, you may refer to HMRC guidance on gifts.

Under a tenancy in common, each co-owner has a distinct, undivided share in the property, which can be equal or unequal, according to what has been agreed upon at the time of purchase. When the property is sold, the proceeds are typically divided based on the percentage of ownership each person holds. If you and your relative agree on different percentages, this should be documented in a Deed of Trust or a similar legal agreement to clearly outline each party's share, thus avoiding potential disputes. This setup allows for flexibility in ownership shares, reflecting the parties' respective contributions or agreements. For further details on tenancy in common, you may consult the Land Registry.