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  • FIRST POST
    • Toriaizu
    • By Toriaizu 10th Jan 18, 11:40 PM
    • 3Posts
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    Toriaizu
    A question
    • #1
    • 10th Jan 18, 11:40 PM
    A question 10th Jan 18 at 11:40 PM
    Hi, I have a question. I'm planning on buying a flat, with my brother making me an interest free loan of approximately 15% of the purchase price in order to help me buy it. His interest to be protected by a first charge on the property at the Land Registry for the exact amount of the loan. An interest free loan, with him not owning a share in the property. He's happy with those terms, he's happy to help me out (and his nieces/nephews by contributing towards more space for them when they visit me or stay with me). There will be no mortgage on the property. If and when it's sold, he'll get the amount of his original loan back. The flat will be my residence and the only property I have any financial interest in. Am I right in thinking the arrangement will attract no income tax or capital gains tax liability for him or for me?
Page 1
    • ThePants999
    • By ThePants999 11th Jan 18, 1:20 AM
    • 965 Posts
    • 1,126 Thanks
    ThePants999
    • #2
    • 11th Jan 18, 1:20 AM
    • #2
    • 11th Jan 18, 1:20 AM
    Should be correct. From your perspective it's basically an interest free private mortgage, so no reason you should be hit with any tax that someone with a "normal" setup wouldn't pay. And your brother is receiving no income from this arrangement, nor making any capital gains, so I can't see why he'd pay any tax either.
    • G_M
    • By G_M 11th Jan 18, 12:54 PM
    • 42,717 Posts
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    G_M
    • #3
    • 11th Jan 18, 12:54 PM
    • #3
    • 11th Jan 18, 12:54 PM
    As ThePants says above.

    But note
    His interest to be protected by a first charge on the property at the Land Registry for the exact amount of the loan.
    The LR will register the Charge, but not the amount.

    It is worth having a separate document recording the loan & the repayment terms (amount, timing) etc.

    He/you might also wish to consider (and record) what would happen if his circumstances changed and he needed the loan repaid early (eg he lost hs job, had a family, became ill etc). For example the agreement might be that in those circumstances you would take out a mortgage and repay him.

    You could eitther draw up such a document yourselves informally (signed and ideally witnessed), or ask a solicitor to draw it up.
    • Toriaizu
    • By Toriaizu 11th Jan 18, 6:53 PM
    • 3 Posts
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    Toriaizu
    • #4
    • 11th Jan 18, 6:53 PM
    • #4
    • 11th Jan 18, 6:53 PM
    Thank you both for your helpful replies and I will follow your advice GM. We were planning to have it all properly documented by solicitors anyway.
    • saajan_12
    • By saajan_12 12th Jan 18, 10:00 AM
    • 1,036 Posts
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    saajan_12
    • #5
    • 12th Jan 18, 10:00 AM
    • #5
    • 12th Jan 18, 10:00 AM
    Well done for the thorough OP, you're clearly thinking about all the eventualities. Just two bits of advise from me

    1) Discuss what 'repaid when sold means' and make sure brother is happy this could be years / generations away, he can't come back and ask for it earlier

    2) Make sure your written agreement precisely specifies the timing and amount of repayment (e.g. in x years and Ły per month / when sold / when inherited)

    The worst thing is when one party's circumstances change and is in need, expecting the other party to amend the agreement when they may not be able to either e.g. pressuring loans to be returned early, refusing to pay repayments..
    • TBagpuss
    • By TBagpuss 12th Jan 18, 10:34 AM
    • 6,144 Posts
    • 7,909 Thanks
    TBagpuss
    • #6
    • 12th Jan 18, 10:34 AM
    • #6
    • 12th Jan 18, 10:34 AM
    Well done for the thorough OP, you're clearly thinking about all the eventualities. Just two bits of advise from me

    1) Discuss what 'repaid when sold means' and make sure brother is happy this could be years / generations away, he can't come back and ask for it earlier

    2) Make sure your written agreement precisely specifies the timing and amount of repayment (e.g. in x years and Ły per month / when sold / when inherited)

    The worst thing is when one party's circumstances change and is in need, expecting the other party to amend the agreement when they may not be able to either e.g. pressuring loans to be returned early, refusing to pay repayments..
    Originally posted by saajan_12
    Or alternatively have a clear record of when and in what circumstances brother can request he is paid back - this might be by giving (say) 6 months notice in writing so that you had time to arrange other borrowing, for instance, or (as you mention children) it could be on notice but not before the youngest child turns 18.

    Obviously it is down to your brother, but it may be sensible to have provisions which would enable him to get his money back out of the property should his own circumstances change, as well as enabling you to afford your new home.
    • OurKev
    • By OurKev 12th Jan 18, 10:53 AM
    • 737 Posts
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    OurKev
    • #7
    • 12th Jan 18, 10:53 AM
    Just a thought...
    • #7
    • 12th Jan 18, 10:53 AM
    You/he may also want to consider the implication should his circumstances change in an unexpected way and what the impact on/of the loan would be...

    For example, would this be seen as a deliberate attempt to reduce his savings should he ever require benefits (or may he be forced to ask for the money back at some point)?

    And the thing none of us like to consider, what should happen in the event of either you or he passing away (so maybe something to cover in wills?).
    • Toriaizu
    • By Toriaizu 12th Jan 18, 7:28 PM
    • 3 Posts
    • 0 Thanks
    Toriaizu
    • #8
    • 12th Jan 18, 7:28 PM
    • #8
    • 12th Jan 18, 7:28 PM
    TBagpuss, Saajan, OurKev, thank you all for your very helpful observations and advice. I'm not in a position to write in any detail now and probably won't be until Sunday but as soon as I have an opportunity, I will.
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