Registering a personal loan given to a friend

paulnselby

Hello all,

I would like to explain a situation that has occurred in my family. I have been given the joyous task of resolving some family lending that has taken place in the family on 'gentlemens terms'. My family lent a close and now elderly family friend (he remains very close to us to this day) a total in region of £50,000 over the last 20 years, with the agreement that he would repay the money on sale of his house or leave the same amount in his will, which as he has no family, is being left to us. The total value of his estate is likely to exceed the £325,000 by about £40,000. So £16,000 would go to inheritance tax is it is not registered as a debt. Of course the amount is a loan and therefore if the £50,000 was registered as a loan, we would not fall into that bracket and have a IHT exposure.

I would like to add that one option is to register the debt with the land registry, which would be due on sale of the house. This is possible, but complicated as he has an outstanding mortgage in place which would complicate and may preclude having any debt registered against the property.

Unfortunately there is a further threat at this point in time. He has been approached by a 'Wealth Management fund' who have offered to purchase his home from him and let him live in it 'rent free' for the rest of his life! Alarms bells are ringing here, and we suspect they are trying to purchase the property below market value, leaving contingency for at least 5 years in the property, whilst still making a handsome profit on the real market value and expected capital growth. Still we cannot stop him, so at the very least we would like to get the loan registered so it cannot be disputed in the future. It would be sad to see him leave the place and although he would effectively passing his remaining wealth to a wealth management fund, rather than to ourselves, his surrogate family and closest friends, he wishes to spend the rest of his life living in that house and we respect whatever he decides to do.

So to conclude.. What options do we have in registering the loan with an official entity that would have legal standing?

Thanks to all for your advice on this.

Paul

System

You can't do it retrospectively. It should have been done at the time it was taken out and every time he was lent more money would have been a new loan or an update to the existing agreement, again in writing. Without anything at all in writing you've basically no hope in hell and trying to do it now with him in advanced years and maybe not sound of mind is likely to result in grief. You cannot register it with Land Registry, again because the loan already exists and it was taken out as an unsecured loan. That is even before you start to look at whether or not you actually can as you're not a licensed lender.

It is compounded by the fact that he isn't actually your family but a close family friend and it is possible that he has relations that you aren't aware of and you can bet your bottom dollar they'll come crawling out the woodwork when he dies if there's a sniff of money.

Ultimately the best you can hope for is that he bequeaths something in his will to you but there is no legal requirement for him to do so. Without anything in writing collection is effectively unenforceable.

It would be sad to see him leave the place and although he would effectively passing his remaining wealth to a wealth management fund, rather than to ourselves, his surrogate family and closest friends,

I'll just point out that on the face of it the above part of your post doesn't really paint you in a good light. It actually paints you as a set of opportunist money grabbers waiting for him to pop his clogs so you can have a windfall.....

dauphin

Ignore this completely erroneous advice.

Of course it would have been better if this loan had been properly documented at the time, but all is not lost by any means, particularly if the borrower remains onside (and is of sound mind).
The family need to consult a solicitor and the borrower needs to see another solicitor so that he can be independently advised.
A document can be drawn up and signed by both parties, confirming and recording the terms of a loan or series of loans previously made and the provisions for repayment. Probably desirable that this should be in the form of a deed.

With the borrower's agreement (again with independent advice) a charge could also be taken against his house. Without a charge, there is nothing that could be registered with the Land Registry or anywhere else, but a charge can be agreed and registered at any time. It doesn't matter that there is already a mortgage on the property, but any charge will now rank behind the mortgage.

Ultimately, as far as the inheritance tax issue is concerned, the executors may need to be able to satisfy HMRC when the time comes that the debt is a valid one and not concocted for the purpose of reducing the value of the estate. A deed, even if entered into now, would be a good starting point, and having it entered into after both sides have consulted solicitors would certainly help, but you should also look at what other evidence (such as old bank statements) can be preserved and eventually produced if the genuineness of the debt is ever challenged.

With regard to the possible sale of the property during the borrower's lifetime, that is of course a matter for him, but if he will grant you a charge on the property even now his indebtedness will have to be paid out of the proceeds of sale.

Another benefit of the borrower obtaining independent advice will be that his solicitor will no doubt satisfy himself that the gentleman retains the capacity to make his own decisions and may even query with him the proposed sale to the Wealth management fund if there is reason to think that this may not be in his best interests.

You should certainly get some proper legal advice and not depend on what people may say on a forum such as this.

[Deleted User]

Its a complicated issue and you won't get a definitive answer on the internet, you need proper legal advice

Land_Registry

Legal/financial advice is recommended to ensure all interests are considered and protected.

Such a debt doe snot though have to be protected by a legal charge and there are other means of protecting such interests such as a restriciton or a notice. Indeed should he go the 'wealth management' route then they may seek to protect their interest in a similar way.

Practice Guide 19 covers how Notices and Restrictions may be registered to protect certain interests. Yes there will often be a signed agreement or formal arrangement behind it but the interest itself may be something you can protect in this way albeit most likely in your scenario with the owner's consent/involvement

paulnselby

Tarambor wrote: »

I'll just point out that on the face of it the above part of your post doesn't really paint you in a good light. It actually paints you as a set of opportunist money grabbers waiting for him to pop his clogs so you can have a windfall.....

Thanks to all for the comments so far. I think it is best for all readers that we avoid moving this discussion into an ethics issue. Family finances (whether blood relatives or not) are a complicated issue and whilst these issues are sometimes uncomfortable to discuss, they are nevertheless necessary for logical and appropriate family planning.

paulnselby

Land_Registry_representative wrote: »

Practice Guide 19 covers how Notices and Restrictions may be registered to protect certain interests. Yes there will often be a signed agreement or formal arrangement behind it but the interest itself may be something you can protect in this way albeit most likely in your scenario with the owner's consent/involvement

Thanks very much. Can you explain the difference between a notice and a legal charge?