Charge against a property as a percentage rather than absolute number

commonsensebrother

getmore4less said:

AIUI If you take a beneficial interest SDLT.

Interesting, thanks. Presumably a cash charge wouldn’t be deemed a beneficial interest but a percentage charge might?

AnotherJoe

I have an agreement with my daughter (signed witnessed drawn up by solicitor) that my share is worth 50% of the value of her house when its sold (as it was 50% when bought). And yes if it decreases then I take that hit.

However AFAIK the 2nd charge against the house is just for the initial loan as a fixed sum which was 50% at the time. Or possibly it just refers to the loan doc to determine the charge, Im not sure (dont recall) and as Im going to write that off soon I"m not fussed enough to dig into it.

davidmcn

getmore4less said:

davidmcn said:

getmore4less said:

AIUI If you take a beneficial interest SDLT.

Yes, but the amount repayable being linked to the property value isn't in itself (AFAIK) sufficient to make it a beneficial interest. It's what e.g. builders who "retain" 20% of the equity do - they don't really own the equity, but the amount you repay them is linked to the value.

Builders, shared ownership, HTB all get benefits not extended to the general public.
Lenders also accommodate those shared relationships in a way others have difficulty getting access to.
If it was easy more would be doing it.

It's still not a beneficial interest in the sense of being in any way akin to ownership though. It's just a different way of calculating the repayment of the secured loan.

John_

Grumpy_chap said:

I may have misunderstood, but I do read the thread that the OP is looking to "double-dip"

OP does not want to own part of the property, to avoid tax

OP want to loan 25% of the property price and benefit from the gain (or loss) when the property is sold.

OP also want interest at 1% of the property value per year when the property is sold.  Calculation of what that 1% means each year will be difficult.

Yes, OP is proposing a deal with a lot of up-side on appreciation of the property while wanting to pretend that they aren’t gaining a benefit.

steampowered

The charge just secures whatever is in the loan agreement.

You could say in the loan agreement that the capital is repayable as a percentage of the value of the property upon sale.

I don't see why you would need interest in addition. Surely your "interest" is whatever increases may have occurred in the value of the house by the time it is sold.

getmore4less

davidmcn said:

getmore4less said:

davidmcn said:

getmore4less said:

AIUI If you take a beneficial interest SDLT.

Yes, but the amount repayable being linked to the property value isn't in itself (AFAIK) sufficient to make it a beneficial interest. It's what e.g. builders who "retain" 20% of the equity do - they don't really own the equity, but the amount you repay them is linked to the value.

Builders, shared ownership, HTB all get benefits not extended to the general public.
Lenders also accommodate those shared relationships in a way others have difficulty getting access to.
If it was easy more would be doing it.

It's still not a beneficial interest in the sense of being in any way akin to ownership though. It's just a different way of calculating the repayment of the secured loan.

It is still a beneficial interest in the property just hidden behind a loan.

There is no requirement to have a legal interest as in being on the title of  a property to have beneficial interest.

A lon of this type also has  tax implication that should be declared, it will either be income or CGT.

Grumpy_chap

Well, presumably, because that interest will all realise in one year, the OP will then think CGT is a good idea (except that can't happen as the OP has no interest in the property) compared to income tax likely to be at higher rate, possibly additional rate.

mrschaucer

theoretica said:

If you owned 1/4 of the property you would also be exposed to capital gains tax on sale - I don't know if not being legally on the deeds gets round this, it's something to look into.

The OP will not "own" 1/4 of the property though.  That's what a mortgage is, just a loan BACKED BY the security of property.  Building societies, banks and other mortgage lenders do not own the properties they grant mortgages on.

getmore4less

mrschaucer said:

theoretica said:

If you owned 1/4 of the property you would also be exposed to capital gains tax on sale - I don't know if not being legally on the deeds gets round this, it's something to look into.

The OP will not "own" 1/4 of the property though.  That's what a mortgage is, just a loan BACKED BY the security of property.  Building societies, banks and other mortgage lenders do not own the properties they grant mortgages on.

It is not about the legal ownership it is about the beneficial interest in the property, 

mortgages do not create a beneficial interest they are just a debt.

Not being on the deeds does not get round the beneficial interest.

getmore4less

worth a read if you want to understand property ownership and beneficial interest.
https://www.gov.uk/government/publications/private-trusts-of-land/practice-guide-24-private-trusts-of-land

The essence of a trust of land is that the formal title to the land (the ‘legal estate’) is separated from the underlying ownership (the ‘equitable interest’ or ‘beneficial interest’)..................

as an implied, resulting or constructive trust, for example where the proprietor has acquired the land using funds provided by another..........

also note.

Since 1925, it has been impossible for a legal estate to be held as a tenancy in common (sections 1(6) and 34 of the Law of Property Act 1925). Joint owners must hold the legal estate as joint tenants, but their beneficial interests may be held either as joint tenants or as tenants in common.