Additional 3% SDLT for parents not on title deed?

davidmcn

aroominyork wrote: »

Sorry for not giving full info at the outset. booksurr, how does your earlier advice re beneficial interest might apply - which you did not mention would be on the full purchase price of the house - align with rental income creating a beneficial interest which would make the whole house liable for +3%?

If the additional dwelling supplement is triggered then the 3% is payable on the whole price, not just the portion owned by the owner who has multiple properties. If that's what you're getting at?

aroominyork

davidmcn wrote: »

then the 3% is payable on the whole price, not just the portion owned by the owner who has multiple properties

Yes, that exactly what I was getting at, and it makes sense that SDLT is levied on the property and not on individual part-owners.

So I need to ask a different question about how to structure this. The situation is that our daughter can raise £450k towards a £500k property. We can invest the other £50k if we receive an income from it. So we are looking for a way to receive income on our share of the property (at a discount from market rent since our daughter will pay for maintence etc.) and to receive capital gain when she might buy out our share.

I can see three potential models: part-ownership on the title deeds with a supporting declaration of trust; part-ownership not on the title but with all detail on the trust; a secured loan. There are various factors that would decide the way to go, eg security for all parties, and flexibility, but solely on tax issues - mostly SDLT but partly CGT - advice would be welcome.

Thrugelmir

Keep_pedalling wrote: »

Are they getting a mortgage for this purchase?

You omitted to answer this question. If your daughter can only "raise" £450k then one assumes there is. All of which puts a different complexion on the matter.

aroominyork

Yes, she will get a mortgage. It would be approx. £100k her deposit, £350k her mortgage, £50k our investment.

She will share the cost/house with her boyfriend if that makes a difference (apart from for securing everyone's interests if they separate).

Pixie5740

Does the mortgage lender know about this arrangement? I can't see them agreeing to her owning 90% of the property whilst you own the remains 10%.

Wouldn't it be easier for her to buy a £450k property and you to invest your £50k in something like P2P lending? That would probably give you better a better return on your investment, get rid of the SDLT surcharge and keep the mortgage lender happy.

booksurr

aroominyork wrote: »

Yes, she will get a mortgage. It would be approx. £100k her deposit, £350k her mortgage, £50k our investment.

She will share the cost/house with her boyfriend if that makes a difference (apart from for securing everyone's interests if they separate).

then subject to your daughter speaking to a mortgage broker, as far as mortgage advisers who post on here have ever said, lenders require all parties named on the deeds to be party to the mortgage. Obviously they cannot repossess a house if a co-owner has not defaulted on the mortgage since that person is not on the mortgage.

the lender will ask where her 50K deposit has come from, depending on her answer you will be required to sign a legal declaration that what she says is true.

a) it is a loan repayable to her parents + interest on a monthly/yearly/at point of sale basis. The lender will decide how that impacts daughter's affordability calculation and may decide not to allow 450k. No SDLT

b) it is a share of the property with you on the deeds. You will be required to be on the mortgage. You may or may not pass the affordability test and therefore may or may not scupper the whole plan. Higher rate SDLT

c) it is a beneficial interest, not a legal interest. You have a second charge over the property which the lender may, or may not, allow. Higher rate SDLT

d) you give her a gift of 50K without any conditions attached to it. You do not get an income from it and you rely on her to repay it at a future date whilst in the meantime making a false declaration to her lender that it is a non repayable gift. No SDLT

aroominyork

That’s very helpful, booksurr. Under option a) would there be a declaration of trust? If so, could the trust allow for the interest to change over time, since our plan under the ‘rent’ model was to review rent every two years based on the market rental value of the property? Also, how would this model allow us to be repaid at 10% of the value of the property at the time of repayment of the loan?

Keep_pedalling

This is obviously a long term investment you are talking about, so why not dump idea and invest yout £50k in equities wrapped up in tax free ISA.

aroominyork

Keep_pedalling wrote: »

This is obviously a long term investment you are talking about, so why not dump idea and invest yout £50k in equities wrapped up in tax free ISA.

Because we want to help our daughter buy a house that would otherwise be inaccesssible to her. Two birds, one stone.

Keep_pedalling

aroominyork wrote: »

Because we want to help our daughter buy a house that would otherwise be inaccesssible to her. Two birds, one stone.

Then just gift her the money, there is no gaurantee that you will get the money back in your lifetime anyway.