News and Insights
28 September 2016
Selling the reversionary interest in your home: the pros & cons
For many of us our home is our most valuable asset
Law firm Viberts provides a legal assessment of selling the reversionary interest in your property, covering the pros and cons that should be taken into consideration before jumping in head first.
For many of us our home is our most valuable asset. The prospect of being able to reside in your home for the remainder of your life, or at least until such time as you may need to go into residential care, is an attractive one.
Putting it simply, selling the reversionary interest allows the house to be sold at a reduced price taking into account the theoretical life expectancy of the seller, freeing up capital in the property. The seller or sellers may then remain living in the property or rent it out until they die.
It is possible to sell the reversionary interest in your home and retain a life interest. The effect would be that the buyer takes full ownership of your property when you die. Whilst you are living, you are referred to as the “life tenant” and will have certain obligations as set out in the contract between you and the buyer (‘the reversioner’).
With the cost of living ever increasing and the value of pensions decreasing, selling the reversionary interest in your home may sound like an attractive proposition. There are, however, many potential pitfalls and obtaining professional advice is imperative.
Will your home always suit your needs?
You may wish to move in years to come, to live near a relative or to a property which is more suited to your needs. If you have already sold the reversionary interest in your home and spent the capital, you may not be able to afford to move. Selling your life interest to raise further capital would not be an easy thing to do.
Who decides on the value of your life interest?
It is possible to obtain an estimated value of your life interest by using actuarial tables which are based on averages. The value of your life interest will largely depend upon the rental and market value of the property, your age and your state of health. It is advisable to instruct a qualified actuary to carry out the valuation on your behalf.
Who will be responsible for the cost of repairs and maintenance?
This is an important part of the negotiation with the prospective purchaser. The life tenant should ensure that the proceeds of sale are not spent on repairing the property. If there is nothing in the contract then the default position in Jersey is that common law imposes a duty on a life tenant to look after the property as would a prudent owner. He must not cause the condition of the property to deteriorate and is obliged to carry out ‘repairs of upkeep’ and these are defined as all repairs except for re-construction of the four main walls, the beams (or girders), the whole of the roof and vaults.
When does the reversionary take over the property?
It is prudent to ensure that your enjoyment is for the whole of your life and that there is no restriction on letting the property. This means that if the need arises to leave the property to enter residential care, to downsize or go to live with a family member arises, you can rent the property to ensure that you have an income for the remainder of your life.
Have you considered your entitlement under the Long Term Care Scheme?
Taking advice on your entitlement under the scheme could well affect your future financial decisions. With the introduction of the new scheme in July 2014 most Jersey residents who need to enter care will receive some level of funding from the State to cover at least part of the cost. The financial decision you make at this point could affect how you are assessed under the scheme.