Securing a loan with a Declaration of Trust

GizzaClue

My partner and I are buying a house with a gifted deposit of £200K from my parents. My parents will, in time, sell their house and will live with us. My uncle is lending my parents the £200K interest free as a bridging loan (which they are then gifting to us) until their house is sold. My parents own their house outright.

Great to have an uncle who will help like this! But we have 3 solicitors involved and they cannot agree…. we need some guidance!

3 questions: If my parents make a Declaration of Trust regarding the £200k in favour of my uncle does that mean:
1 - my uncle becomes an owner of their property?
2 - my uncle would have to pay stamp duty?
3 - my uncle would need to declare the loan or the equity to HMRC?

If you have any alternative suggestions please feel free! We have been told that the Consumer Credit Act and the Financial Services Act make it impractical for my uncle to simply take a charge out against my parent's property.

Many thanks!

Apples2

Sounds an absolute nightmare.
What if your parents decide not to sell?
What if they die before they sell?

Makes me shudder (for your Uncle).

GizzaClue

Too right! Hopefully the time should be brief and the risks low…. you can imagine the solicitors are enjoying it.

MEM62

The solicitors will not necessarily agree because they are each protecting the interests of their individual clients (you, your parents and your uncle) - and rightly so. The way forward will require some element of compromise and only you guys can decide what you are willing to accept in that respect.

jonesMUFCforever

Might not get a lender to agree to those terms either.

Thrugelmir

Given the size of the deposit. Then questions will be asked as to it's source. The fact that's lent from another party. Would make the matter untenable for the lender.

GizzaClue

Thanks all for your replies….
Can anyone explain how a Declaration of Trust relates to property ownership? Does it incur stamp duty? Help appreciated!

jonesMUFCforever

The land registry website is where I would look first for an answer.

Crystallady

To secure your parents' loan from you uncle, your uncle could take a legal charge over your parents' property which will be cleared on the sale of the property. However should your parents' property not be sold for some time for whatever reason the repayment of the loan could be a long time in the future - hope your uncle realises this.
He's not buying the property so I can't see that stamp duty should come into it - sorry don't know about HMRC.
Your parents then have the £200k they are gifting to you - whether your lender will be happy with the source of the gift can only be answered by them.

Thrugelmir

As the name of the document suggests, i.e. "Trust" . This isn't going to provide any security. Merely a document which can be initiated to aid legal recovery.

Land_Registry

GizzaClue wrote: »

Thanks all for your replies….
Can anyone explain how a Declaration of Trust relates to property ownership? Does it incur stamp duty? Help appreciated!

Take a look at our online guidance around property ownership to understand how a Declaration of Trust may affect joint ownership.

The important thing to note is that such a Declaration often has a much wider impact than simply affecting property ownership so any recording on the registered title may be just one part of it's effect.

Stamp Duty issues should be referred to HMRC but broadly speaking Stamp Duty Land Tax (SDLT) is generally payable on the purchase or transfer of property