Declaration of solvency for Gifts - What do you need to do?
28/04/2020
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A declaration of solvency is required by a mortgage lender and or a buyer when the owner is gifting their share in a property for zero consideration. Gifting a house means the owner no longer owns the property/asset that was once theirs and has a value. You cannot gift property under value if you know that you can't afford to repay your debts/liabilities. In these cases the transaction could be reversed by the Trustees in Bankruptcy to pay off your debts.
To be able to declare you are solvent your assets (assets meaning valuable things you own like money in the bank, car, jewellery or houses) must outweigh your liabilities (HMRC taxes, loans, mortgages, contracts with suppliers). If you were made bankrupt after the gift then the transaction could be reversed in order for the property to be sold to pay off the creditors. Mortgage lenders would be at risk of not getting repaid which is why they ask for a declaration and also Insolvency Indemnity Insurance.
Insolvency Act 1986: Section 339 - Transactions at an undervalue
(1)Subject as follows in this section and sections 341 and 342, where an individual is adjudged bankrupt and he has at a relevant time (defined in section 341) entered into a transaction with any person at an undervalue, the trustee of the bankrupt’s estate may apply to the court for an order under this section.
(2)The court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if that individual had not entered into that transaction.
Here is a declaration of solvency format template which you can use to evidence you are solvent:
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Assets
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Liabilities
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Balance
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£510,000
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£434,000
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£76,000
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In the above example you can see that the assets outweigh the liabilities which means you are solvent.
What is the statutory declaration of solvency procedure?
You need to sign a declaration in the presence of a solicitor who counter signs your signature. The solicitor doesn't check your financial position, they only witness your signature.
Speak to your own solicitor or mortgage lender to confirm their own prescribed format.
Frequently Asked Questions
Declaration of solvency meaning
Under the Insolvency Act 1986 - Section 123 - Definition of inability to pay debts it states "A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company’s assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities".
What other declarations of solvency are there?
Under the Insolvency Act 1986 - Declaration of solvency, Section 89 - Statutory declaration of solvency Directors of a company are required to make a declaration of solvency when voluntarily winding up a company. Our solicitor can help with this type of declaration so call us to book your appointment - 0333 344 3234.
Speak to your own solicitor or mortgage lender to confirm their own prescribed format.
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