Charge against a property as a percentage rather than absolute number

getmore4less

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.

The charge is not relevant that is just a way to stop the owner running away with the mone.

The key is  if you are getting a % of the property it is a beneficial interest in the property.  

A mortgage charge is not protecting a beneficial interest just a regular variable debt.

A HTB equity loan is what you need to compare to,  as that does retain a beneficial interest as a % of the property

Also HTB equity loans charge interest after 5 years so there is a president for what the OP is proposing.

A beneficial interest in anything is where you get any benefit from that thing, in this case it is the property value

getmore4less

commonsensebrother said:

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.

HTB equity loans have both the beneficial interest and charge interest after 5 years.
Probably the closest equivalent for your proposal.

silvercar

getmore4less said:

commonsensebrother said:

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.

HTB equity loans have both the beneficial interest and charge interest after 5 years.
Probably the closest equivalent for your proposal.

So key question, does the government calculate a CGT for itself? 
In my mind, just because the repayment is linked to the value of the property doesn't automatically make it a BI. What would happen if the loan repayment amount was linked to the value of his parent's business, would that mean he had a BI in the business or in the house? I doubt it.

mrschaucer

getmore4less said:

The charge is not relevant that is just a way to stop the owner running away with the mone.

The key is  if you are getting a % of the property it is a beneficial interest in the property.  

A mortgage charge is not protecting a beneficial interest just a regular variable debt.

A HTB equity loan is what you need to compare to,  as that does retain a beneficial interest as a % of the property

Also HTB equity loans charge interest after 5 years so there is a president for what the OP is proposing.

A beneficial interest in anything is where you get any benefit from that thing, in this case it is the property value

The OP has never said he has any intention of getting or wanting a % of the property.

getmore4less

mrschaucer said:

getmore4less said:

The charge is not relevant that is just a way to stop the owner running away with the mone.

The key is  if you are getting a % of the property it is a beneficial interest in the property.  

A mortgage charge is not protecting a beneficial interest just a regular variable debt.

A HTB equity loan is what you need to compare to,  as that does retain a beneficial interest as a % of the property

Also HTB equity loans charge interest after 5 years so there is a president for what the OP is proposing.

A beneficial interest in anything is where you get any benefit from that thing, in this case it is the property value

The OP has never said he has any intention of getting or wanting a % of the property.

IT is exactly what they said they wanted to do....
try reading the OP  first post again, I will include it here for you and bold the relevant bit.

We're planning to lend our in-laws approx 25% of the purchase price of a property (the other 75% covered by them) with a charge against the property to secure our loan. Is it possible for that charge to be a percentage of the property price (25%) rather than absolute number (e.g. £60,000)? Secondary to that would be be possible to have an agreement where interest is accrued as a percentage of property value, e.g. 1% per year to be redeemed on house sale (I understand tax would be payable on this interest when the house is sold). 
Waiting to hear back from our property solicitor but was just curious if anyone had any experience of anything like this. 

If they want their payment to be worth a % of the property that is a beneficial interest in the prop.

how they secure it is not relevant the purpose of the loan is to establishing of an equitable(beneficial) interest in the property.

mrschaucer

getmore4less said:

IT is exactly what they said they wanted to do....
try reading the OP  first post again, I will include it here for you and bold the relevant bit.

We're planning to lend our in-laws approx 25% of the purchase price of a property (the other 75% covered by them) with a charge against the property to secure our loan. Is it possible for that charge to be a percentage of the property price (25%) rather than absolute number (e.g. £60,000)? Secondary to that would be be possible to have an agreement where interest is accrued as a percentage of property value, e.g. 1% per year to be redeemed on house sale (I understand tax would be payable on this interest when the house is sold). 
Waiting to hear back from our property solicitor but was just curious if anyone had any experience of anything like this. 

If they want their payment to be worth a % of the property that is a beneficial interest in the prop.

how they secure it is not relevant the purpose of the loan is to establishing of an equitable(beneficial) interest in the property.

Yes, I have tried reading the first post again, including your bolded passage.  We must just be reading things differently or with a different emphasis.  I take away from it that OP wants to make a loan with property as security and is musing different strategies on interest.
1)  We agree that if he makes a specific sum repayable, with property as security, that would not entail any beneficial interest problem? 
2)  But on his query about using a percentage repayment model, you advise that trying to do it on that basis would indeed entail beneficial interest problems?
As before, I think the OP is putting those queries to his solicitor and has promised to come back with details. 

commonsensebrother

I was asked to give an update following chat with solicitor. 

They confirmed that a charge involving percentage equity is indeed considered a beneficial interest with respect to stamp duty. A charge involving the fixed cost of the loan is not. So the latter is clearly the way to go. Thanks for your input all.

mrschaucer

Thanks for coming back, OP, and glad you got it definitively sorted to your satisfaction.  Very useful for anybody searching the forum for a similar question in the future.

Rural_Puppy

Thanks O/P.I have just seen this thread, and as I was reading through, I wondered if anyone had suggested that the loan could be repaid in one of two ways, depending on the prevailing value of the property at the end of the loan period?
eg Loan of £60k, which equates to about 25% of the value of the property today.
Could a deed be written up to say how and when the loan is repayable? 
So deed states that the loan is to be repaid on the death of both of the occupiers, or when the property is sold, whichever happens first.
The amount repayable will either be the greater of £60k, or 25% of the sale price.
That way, you do not become an owner of any part of the property, you simply have a charge over it. Your original loan amount is protected in the event that the value falls, you do not receive any interest, but you will benefit from any increase in value.
The occupiers have the peace of mind of knowing you are not going to turf them out to get your money back.
Food for thought! best of luck.

getmore4less

If you use % it is a beneficial interest in the property which attracts both SDLT and CGT assessments.