Declaration of Trust

needamemory

Due to various reasons my son is supplying 9% of the purchase price of the property that I am currently purchasing. To protect his interests we are unsure if it would be best for him to either put a Declaration of Trust in place or a Legal Charge on the property. I assume he will require the services of a solicitor to do this. We are unsure which is the best method, what the procedure is and how long this is likely to take since I am within weeks of exchange. Any advice would be greatly appreciated.

Guest101

Is he a joint applicant on the mortgage?

needamemory

I should have said, apologies, I am buying without a mortgage. With thanks.

Guest101

Then just buy as tenants in common 91% 9%

booksurr

a straight answer cannot be given without knowing :

a) will the son live there as his own home? (implications for son's CGT position)
and/or
b) does the son expect to be repaid before the property is sold? Will he be repaid more than he loaned? (implications for both son's and father's estates plus son's income tax)

Guest101

booksurr wrote: »

a straight answer cannot be given without knowing :

a) will the son live there as his own home? (implications for son's CGT position)
and/or
b) does the son expect to be repaid before the property is sold? Will he be repaid more than he loaned? (implications for both son's and father's estates plus son's income tax)

Apologies, I presumed he'd live there. You're spot on.


I'd do tenants in common if he will live there.

getmore4less

The key thing to decide is it a loan or is he buying a share.

If buying a share it should be based on full cost of purchase inc fees.

needamemory

Thankyou. My son will not be living in the property. His intentions are to invest 9% in the property and when it is sold he will be reimbursed his 9% on whatever sum the property is sold for.

Guest101

needamemory wrote: »

Thankyou. My son will not be living in the property. His intentions are to invest 9% in the property and when it is sold he will be reimbursed his 9% on whatever sum the property is sold for.

How much is the house worth? Has he considered CGT and Stamp Duty?

This is not a good investment for him. (unless you are renting it out too?)

needamemory

Thankyou. The house is worth 310k. It will be my sole home and will not be rented out.

booksurr

needamemory wrote: »

I should have said, apologies, I am buying without a mortgage. With thanks.

needamemory wrote: »

Thankyou. My son will not be living in the property. His intentions are to invest 9% in the property and when it is sold he will be reimbursed his 9% on whatever sum the property is sold for.

needamemory wrote: »

Thankyou. The house is worth 310k. It will be my sole home and will not be rented out.

A solution is to buy as tenants in common and thus avoid the need for legal charges or declarations

BUT, I agree with you that buying in sole name is probably best because the future consequences of TIC could rebound badly on the son since as a TIC he would be a part owner of the property, therefore anything else he buys will (patently) be a second property and therefore trigger the 3% surcharge on SDLT payable by buyers who already own property

as the son's objective is to profit from his 9% investment in the form of 9% of the (hopefully) increased final sales value there is no way he can protect that investment without exposing himself to CGT. As a TIC he patently has a share of the asset, under a DOT he also has a share of the asset (by definition he is a "beneficial owner"), with a legal charge, as soon as it is expressed in % terms (rather than simply refund of the original sum without any increase in it) then the same applies

You should take proper legal advice as to which of the original two options is best: a charge or a beneficial ownership (ie declaration of trust) as I don't know the differences in your scenario, but co-ownership with your son should be avoided for SDLT reasons