Charge against a property as a percentage rather than absolute number

mrschaucer

getmore4less said:

The very definition of beneficial interest is being entitled to 25% of the sale price.
There will be a trust created by the action of expecting 25%.

Also remember that releasing the debt is a disposal for CGT.

OP is entitled to receive repayment of a loan.  The loan happens to be secured on a property as security, which means (as above) he has no legal or beneficial interest in the property or possession of the property during the term of the loan.  When the loan is ended, by whatever conditions are in the loan agreement, the charge on the property is removed.
I don't understand why there should be beneficial interest, trust issues or why CGT should be payable when the loan is ended?

Edit:  I can understand why CGT would be payable in the scenario where OP is eventually entitled to a percentage of the house price and there has been an increase in value, but otherwise not.
 

Grumpy_chap

But, the OP is lending the 25% with the expectation that interest is paid by the OP getting 25% of whatever the future sale price is.  

That certainly look, smells, sounds like beneficial interest in the property, not a simple loan.

When the bank loan £60k to buy property, the charge is £60k, not that proportion of future sale value.

getmore4less

commonsensebrother said:

getmore4less said:

Does not have to be secured. 

Tjee agreement to get a % of the property value is creates the beneficial interest. 

Choosing to hide interest when there a tax implications is tax evasion. 

Any charge can be variable, most probably are. 

Nobody is talking about hiding anything. 

You said you want a 25% interest in the property but not pay the SDLT.

You will have a 25% economic benefit from the sale of the property which is the definition of a beneficial interest.
HMRC will think you have a beneficial interest
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg70230

 Each case must be considered in the light of its own particular facts, but the following are indicators that a person has beneficial ownership of land:

• they hold legal title (in the absence of any contrary evidence the legal owner will normally also be the beneficial owner);

• they occupy the land;

• they receive any rental income from the land;

• they provided the funds used to purchase the land;

• they received the sale proceeds from a disposal of the land.

mrschaucer

Grumpy_chap said:

But, the OP is lending the 25% with the expectation that interest is paid by the OP getting 25% of whatever the future sale price is.  

That certainly look, smells, sounds like beneficial interest in the property, not a simple loan.

When the bank loan £60k to buy property, the charge is £60k, not that proportion of future sale value.

Thanks.  So best all round if OP doesn't go for a percentage but sticks with a simple loan figure like banks do!

AdrianC

Grumpy_chap said:

But, the OP is lending the 25% with the expectation that interest is paid by the OP getting 25% of whatever the future sale price is.  

That certainly look, smells, sounds like beneficial interest in the property, not a simple loan.

When the bank loan £60k to buy property, the charge is £60k, not that proportion of future sale value.

I really can't see how a variation between £ and % makes the slightest difference to the basic concept of a charge for a loan. I don't see there being any difference between a normal mortgage and this, when it comes to the creation of a beneficial interest. The only difference is whether the OP benefits from increase in capital value - at the risk of taking a haircut from a decrease.

Likewise, I can't see how increasing the charge by 1% per year in lieu of interest payments is that different from a lifetime mortgage/equity release product.

I think the OP's being greedy looking for the double-dip, but that's a different question.

mrschaucer

AdrianC said:

I really can't see how a variation between £ and % makes the slightest difference to the basic concept of a charge for a loan. I don't see there being any difference between a normal mortgage and this, when it comes to the creation of a beneficial interest. The only difference is whether the OP benefits from increase in capital value - at the risk of taking a haircut from a decrease.

Likewise, I can't see how increasing the charge by 1% per year in lieu of interest payments is that different from a lifetime mortgage/equity release product.

I think the OP's being greedy looking for the double-dip, but that's a different question.

Over to you, OP.  We are all waiting for the advice on this from your solicitor!  Please come back to us.

commonsensebrother

getmore4less said:

commonsensebrother said:

getmore4less said:

Does not have to be secured. 

Tjee agreement to get a % of the property value is creates the beneficial interest. 

Choosing to hide interest when there a tax implications is tax evasion. 

Any charge can be variable, most probably are. 

Nobody is talking about hiding anything. 

You said you want a 25% interest in the property but not pay the SDLT.

You will have a 25% economic benefit from the sale of the property which is the definition of a beneficial interest.
HMRC will think you have a beneficial interest
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg70230

 Each case must be considered in the light of its own particular facts, but the following are indicators that a person has beneficial ownership of land:

• they hold legal title (in the absence of any contrary evidence the legal owner will normally also be the beneficial owner);

• they occupy the land;

• they receive any rental income from the land;

• they provided the funds used to purchase the land;

• they received the sale proceeds from a disposal of the land.

 I said "I definitely want to avoid the second home stamp duty If it can be reasonably and legally be avoided"

If a cash loan secured against the property is the way to do this rather than securing a percentage is the way to do this, then that'll be the thing to do.

All slightly academic as we will likely inherit the property anyway. 

commonsensebrother

AdrianC said:

Grumpy_chap said:

But, the OP is lending the 25% with the expectation that interest is paid by the OP getting 25% of whatever the future sale price is.  

That certainly look, smells, sounds like beneficial interest in the property, not a simple loan.

When the bank loan £60k to buy property, the charge is £60k, not that proportion of future sale value.

I really can't see how a variation between £ and % makes the slightest difference to the basic concept of a charge for a loan. I don't see there being any difference between a normal mortgage and this, when it comes to the creation of a beneficial interest. The only difference is whether the OP benefits from increase in capital value - at the risk of taking a haircut from a decrease.

Likewise, I can't see how increasing the charge by 1% per year in lieu of interest payments is that different from a lifetime mortgage/equity release product.

I think the OP's being greedy looking for the double-dip, but that's a different question.

As established further up the thread, I hadn't really appreciated the double-dip concept. Now I do, I can't see any reason to 'charge' interest in this way.

commonsensebrother

mrschaucer said:

AdrianC said:

I really can't see how a variation between £ and % makes the slightest difference to the basic concept of a charge for a loan. I don't see there being any difference between a normal mortgage and this, when it comes to the creation of a beneficial interest. The only difference is whether the OP benefits from increase in capital value - at the risk of taking a haircut from a decrease.

Likewise, I can't see how increasing the charge by 1% per year in lieu of interest payments is that different from a lifetime mortgage/equity release product.

I think the OP's being greedy looking for the double-dip, but that's a different question.

Over to you, OP.  We are all waiting for the advice on this from your solicitor!  Please come back to us.

Will do, I've emailed them some questions but might be a few weeks before I get to sit down and discuss it with them which I'd like to do.

Grumpy_chap

commonsensebrother said:

 
All slightly academic as we will likely inherit the property anyway. 

Firstly, never do anything in the anticipation of an inheritance as anything can happen to deplete that.

Secondly, if you get this wrong, you could end up giving your in-laws the £60k and then subject to IHT to inherit the money back again.