Stamp Duty on equity purchase?

SDLT_Geek

getmore4less said:

Xposted  with LoL I can't find that thread....  same memory on the ripping up.

This is what HMRC say about beneficial interest in the CGT manual ( my bold  as it applies to loans based on equity)
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.

Of course a lender will receive some of the sale proceeds from a disposal of land.  So will the estate agent and the conveyancer.  It does not mean that any of them have a beneficial interest in the land in a property law sense.  I have read the links posted above and they do not alter my view that an equity based loan can be a loan; it does not automatically give the "lender" a share in the property.
  
People providing money to assist with a purchase have a choice as to how to structure it.  They could acquire a share in the property under a trust (express or implied) or they could lend the money.  These have different legal consequences.  To see which structure has been used, requires one to look at all of the circumstances and come to a realistic view.  The form of the legal documents will be very compelling.  If the legal documents show it as a loan, then that is what one would expect it to be.

getmore4less

Think this may be relevant section for SDLT.
https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm07100

Most likely fall under Assignment, Assignation  as the debt is a proportion of the property assigned to the lender of the money.

the FA  sections that are the actual laws
https://www.legislation.gov.uk/ukpga/2003/14/section/43
https://www.legislation.gov.uk/ukpga/2003/14/section/48
have a look at 48.3.a  

The exemptions start at 57  sure there will be something in there for institutions H2B equity and shared ownerships.
 

SDLT_Geek

getmore4less said:

Think this may be relevant section for SDLT.
https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm07100
I am familiar with this, it does not help with the question of "who is the purchaser" which arises on a purchase aided by an equity loan.
Most likely fall under Assignment, Assignation  as the debt is a proportion of the property assigned to the lender of the money.
I disagree, "assignment" is most commonly the assignment of a lease.  "Assignation" is the Scottish equivalent.  The line of relevance in the guidance is "Land Transfer" "Transferee".  It does not help us work out who the Transferee is, so it takes us no further forwards.  Other provisions, such as in Finance Act 2003 Schedule 16 paragraph 3, help us work out who is the "purchaser" where land is bought "in the name" of someone, but other people are the beneficial owners.
the FA  sections that are the actual laws
https://www.legislation.gov.uk/ukpga/2003/14/section/43
https://www.legislation.gov.uk/ukpga/2003/14/section/48
have a look at 48.3.a  
s48(3)(a) says that a security interest is an "exempt interest".  So this does not support your case at all.  I see nothing in s43 or s48 to help you.  In these cases it is a matter of working out who is the "purchaser"; that is who takes a beneficial interest in a property.  A lender does not.  A lender takes an exempt interest.

The exemptions start at 57  sure there will be something in there for institutions H2B equity and shared ownerships.
 I am not aware of any special rule for Help To Buy equity loans which "switches off" a general rule that such a lender is a joint purchaser.  In my view, there does not need to be, because under general property law, such a lender is a lender, not a "joint purchaser".
There are complicated special rules for SDLT on shared ownership structures at Finance Act 2003 / Schedule 9, but I do not see those as of relevance to the issue of "who is the purchaser" where there is an equity loan.

It is helpful that you set out points which you believe support your argument.  I have commented on your points above, in bold.

I do not suppose this from the Help to Buy information linked before will persuade you at all:
"The Agency’s entitlement to a share of the future sale proceeds is secured through a second charge on your home. This is done in the same way that your mortgage lender will secure its lending through a first charge on your home."

It is clear to me that it is possible to lend money for a purchase on an "equity loan" basis and not be a "purchaser" of the property for SDLT purposes.

[Deleted User]

I found the other thread. 

https://forums.moneysavingexpert.com/discussion/6177721/charge-against-a-property-as-a-percentage-rather-than-absolute-number/p1

SDLT_Geek

Lover_of_Lycra said:

I found the other thread. 

https://forums.moneysavingexpert.com/discussion/6177721/charge-against-a-property-as-a-percentage-rather-than-absolute-number/p1

Thank you, that is helpful.  I see that in thread OP kindly came back to say his solicitor said an equity based loan would count as a beneficial share in the property, so OP was proposing to lend money on a more regular "fixed sum" basis.
  
It does not convince me though, I remain of the view that an equity based loan does not have to take effect as a beneficial interest.  This will be more clearly the case where:
1.  The "lender" is not to occupy the property.
2.  If the property were rented out, the "lender" would not be entitled to any of the rent (but would be limited to any sums due under the loan agreement).
3.  The remedies available to the "lender" for seeking repayment of the loan or for any other breaches of the terms of the agreement are those of a lender, not those of a joint owner.

I wonder if @AdrianC or @davidmcn have any further thoughts?

getmore4less

SDLT_Geek said:

getmore4less said:

Think this may be relevant section for SDLT.
https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm07100
I am familiar with this, it does not help with the question of "who is the purchaser" which arises on a purchase aided by an equity loan.
Most likely fall under Assignment, Assignation  as the debt is a proportion of the property assigned to the lender of the money.
I disagree, "assignment" is most commonly the assignment of a lease.  "Assignation" is the Scottish equivalent.  The line of relevance in the guidance is "Land Transfer" "Transferee".  It does not help us work out who the Transferee is, so it takes us no further forwards.  Other provisions, such as in Finance Act 2003 Schedule 16 paragraph 3, help us work out who is the "purchaser" where land is bought "in the name" of someone, but other people are the beneficial owners.
the FA  sections that are the actual laws
https://www.legislation.gov.uk/ukpga/2003/14/section/43
https://www.legislation.gov.uk/ukpga/2003/14/section/48
have a look at 48.3.a  
s48(3)(a) says that a security interest is an "exempt interest".  So this does not support your case at all.  I see nothing in s43 or s48 to help you.  In these cases it is a matter of working out who is the "purchaser"; that is who takes a beneficial interest in a property.  A lender does not.  A lender takes an exempt interest.

The exemptions start at 57  sure there will be something in there for institutions H2B equity and shared ownerships.
 I am not aware of any special rule for Help To Buy equity loans which "switches off" a general rule that such a lender is a joint purchaser.  In my view, there does not need to be, because under general property law, such a lender is a lender, not a "joint purchaser".
There are complicated special rules for SDLT on shared ownership structures at Finance Act 2003 / Schedule 9, but I do not see those as of relevance to the issue of "who is the purchaser" where there is an equity loan.

It is helpful that you set out points which you believe support your argument.  I have commented on your points above, in bold.

I do not suppose this from the Help to Buy information linked before will persuade you at all:
"The Agency’s entitlement to a share of the future sale proceeds is secured through a second charge on your home. This is done in the same way that your mortgage lender will secure its lending through a first charge on your home."

It is clear to me that it is possible to lend money for a purchase on an "equity loan" basis and not be a "purchaser" of the property for SDLT purposes.

Agree I was a little hasty in reviewing those doc and without further research it does look like an equity based  loan could be OK.
there is a lot to go through and trust you have been through the lot in great detail and have not found anything.

That opens up the avoidance of higher rate SDLT by just buying property in someone else's name retaining all the equity on sale

Security through the charge is separate as the security could be using any asset and the asset can be security for any debt,  just typically for mortgages that is the same property as the debt is buying.

SDLT_Geek

getmore4less said:

Agree I was a little hasty in reviewing those doc and without further research it does look like an equity based  loan could be OK.
there is a lot to go through and trust you have been through the lot in great detail and have not found anything.
It is a matter of applying property law principles to the arrangements in place and working out who has an undivided share in the property.  There are no special rules which treat an equity loan as a share in the property, so long as that is what it genuinely is.
That opens up the avoidance of higher rate SDLT by just buying property in someone else's name retaining all the equity on sale
I comment on this below.
Security through the charge is separate as the security could be using any asset and the asset can be security for any debt,  just typically for mortgages that is the same property as the debt is buying.
Yes, I agree that the "debt" terms are more important than the charge / security, though the use of a charge to support the debt can emphasise the fact that is a debt, as well as giving the "lender" protection.

I note your point about potential avoidance of SDLT using an equity loan structure.  I believe it is possible for, say parents, supporting an adult child through a purchase, to avoid the trap of the 3% surcharge by structuring their financial contribution as an equity loan rather than a share in the property.  This seems like a genuine choice of structure to me.
  
I can see though that there is a limit to what, on a reasonable view of the facts, would be accepted as an equity loan rather than a share in the property.  For example if the person contributing finance expected to be able to live in the property as a consequence of their contribution, then that would be suggestive that the true nature of the arrangement is that the person has a share in the property.

In practice I do not see what I would consider "abuse" of the equity loan structure.  There are limits on what people can do when there is mortgage finance involved.

steampowered

Why doesn't your sister take a mortgage?

When interest rates are at historic lows, it is not in her best interest to avoid a mortgage by taking an equity loan from you. 

If she is proposing to take a mortgage in addition to your loan/investment, then your structure doesn't work as mortgage lenders do not accept loaned deposits.

zagubov

steampowered said:

Why doesn't your sister take a mortgage?

When interest rates are at historic lows, it is not in her best interest to avoid a mortgage by taking an equity loan from you. 

If she is proposing to take a mortgage in addition to your loan/investment, then your structure doesn't work as mortgage lenders do not accept loaned deposits.

I think one of the posters on here found at least some that did -possibly AnotherJoe. Santander and/or Nationwide at least at some point.