Legal Method for Buying a Property Share

Ruudfood

I have bought a property as an investment and I'm in the process of renovating it. Unfortunately, funds for the renovation are running low so I have offered a family member the option of investing a small percentage of the purchase price which would see me over the line and give them a small profit when the property is sold in the future.

How can we make this investment legal? Obviously it would have to go through a lawyer but would the land registry, mortgage lenders and anyone else have to know officially or is there a way that it could be done without the time, hassle of valuations, surveys, etc. Would a charge on the property be enough?

Any help would be appreciated.

theartfullodger

Ruudfood wrote: »

I have bought a property as an investment and I'm in the process of renovating it. Unfortunately, funds for the renovation are running low so I have offered a family member the option of investing a small percentage of the purchase price which would see me over the line and give them a small profit when the property is sold in the future.

How can we make this investment legal? Obviously it would have to go through a lawyer but would the land registry, mortgage lenders and anyone else have to know officially or is there a way that it could be done without the time, hassle of valuations, surveys, etc. Would a charge on the property be enough?

Any help would be appreciated.

If you plan to circumvent the official channels then expect to get bitten, both of you, by everyone ...

Would you be happy if your (eventual.. if you don't go bust first) tenant, say, decided to sub-let but thought it would be easier all round if he didn't bother letting his landlord know he was doing it - you know, "without the time, hassle of inspections, checks etc, etc. "

Sigh!

Anyone who has a beneficial interest in the property should be declaring relevant % of the rental income to HMRC: Does your relative understand this??

In my experience of doing up property it ALWAYS takes longer & costs more than your original estimate: and it (almost) ALWAYS takes longer & costs more than your 2nd, revised, estimate.

Re:" and give them a small profit when the property is sold in the future" and is that before or after the CGT is paid?? And who pays the CGT??

Get it on land registry , mortgage etc etc.. or expect to get painfully stung: Others will hold alternative views...

davidmcn

How "legal" does your relative want it to be? Are they actually expecting a share in the ownership? Or just to lend you money in the hope that it gets repaid with some interest on top? Changing ownership means getting the mortgage lender involved (and more legal costs). A charge would be simpler.

Pixie5740

I was going to suggest that your relative get a charge on the property too.

Ruudfood

theartfullodger wrote: »

If you plan to circumvent the official channels then expect to get bitten, both of you, by everyone ...

Would you be happy if your (eventual.. if you don't go bust first) tenant, say, decided to sub-let but thought it would be easier all round if he didn't bother letting his landlord know he was doing it - you know, "without the time, hassle of inspections, checks etc, etc. "

Sigh!

Anyone who has a beneficial interest in the property should be declaring relevant % of the rental income to HMRC: Does your relative understand this??

In my experience of doing up property it ALWAYS takes longer & costs more than your original estimate: and it (almost) ALWAYS takes longer & costs more than your 2nd, revised, estimate.

Re:" and give them a small profit when the property is sold in the future" and is that before or after the CGT is paid?? And who pays the CGT??

Get it on land registry , mortgage etc etc.. or expect to get painfully stung: Others will hold alternative views...

Thank you for your comment.

The house won't be rented, I'll be living in it. So the tenancy analogy and HRMC income don't really apply in this instance. I expect that CGT wouldn't apply either as it will have been my main residence. But yes, my relative would understand the implications.

Pixie5740

So it's your home rather than an investment then?

AnotherJoe

Anyone who has a beneficial interest in the property should be declaring relevant % of the rental income to HMRC:
=====

There wouldn't be rental income, the OP is renovating and selling.

The OP could do it as a loan, which woudl be simpler, just write up what they are lending you and what you'd pay back and when. Eg "you loan me £10,000 and I will pay back £15,000 after sale of 221b baker street or by 1st Jan 2018 whichever is latest" Maybe other conditions relating the payback amount to a proportion of the profit on house sale or whatever you want, eg "for every £1,000 above £200,000 the house sells for I'll pay you back an additional £100 over the initial loan" , or whatever.

Something like that. Get it signed and witnessed. And thast just there as a fall back in case it all goes pear shaped.

I've got something similar, an agreement (done by a solicitor) plus a charge, however mine was more substantial, 50% of a house. Sounds like you are doing a small enough amount thats not necessary?

p.s. Just seen your comment about living in it. So make it either the average of three valuations, or just a fixed amount to return you decide upfront.

Thrugelmir

Ruudfood wrote: »

Thank you for your comment.

The house won't be rented, I'll be living in it. So the tenancy analogy and HRMC income don't really apply in this instance. I expect that CGT wouldn't apply either as it will have been my main residence. But yes, my relative would understand the implications.

Then asking for a loan seems more appropriate. For which a contractual arrangement could be drawn up to formalise matters. Alternatively just make do and save the money up yourself.

Ruudfood

Thank you all once again for your advice.

Although I will be living in the house I still class it as an investment because I have another house which I'll be renting out while I'm living in the new one. I will be adding value to the new house by extending and renovating and by living in it I would also reduce the CGT burden when I eventually sell.

AnotherJoe wrote: »

Anyone who has a beneficial interest in the property should be declaring relevant % of the rental income to HMRC:
=====

There wouldn't be rental income, the OP is renovating and selling.

The OP could do it as a loan, which woudl be simpler, just write up what they are lending you and what you'd pay back and when. Eg "you loan me £10,000 and I will pay back £15,000 after sale of 221b baker street or by 1st Jan 2018 whichever is latest" Maybe other conditions relating the payback amount to a proportion of the profit on house sale or whatever you want, eg "for every £1,000 above £200,000 the house sells for I'll pay you back an additional £100 over the initial loan" , or whatever.

Something like that. Get it signed and witnessed. And thast just there as a fall back in case it all goes pear shaped.

I've got something similar, an agreement (done by a solicitor) plus a charge, however mine was more substantial, 50% of a house. Sounds like you are doing a small enough amount thats not necessary?

p.s. Just seen your comment about living in it. So make it either the average of three valuations, or just a fixed amount to return you decide upfront.

This seems like the most feasible option. I had suggested to my relative that their "loan" would be a percentage of the purchase price and they will get back the same percentage of the selling price. This means that they also make a profit, albeit probably quite small.

Pixie5740

I thought people who bought properties to do up and sell on paid income tax on the profit rather than CGT.

AnotherJoe

Pixie5740 wrote: »

I thought people who bought properties to do up and sell on paid income tax on the profit rather than CGT.

Not if they are living in the house and its their main or sole residence.
(Unless they do it so frequently HMRC regards it as a business)