Want to help my sister buy a house with a small equity stake, will it affect my future SDLT rates?

tuzz

Hello,

I live in London and own a small flat there (~£210k).

My sister wants to buy a house (not in London) and she can't quite raise enough to meet the asking price (~£340k).

She's about £40k short so I'd like to help her if possible. I'm fortunate enough to have some money saved up. One idea we had is that I take a small equity stake (~10%) in the property so that she wouldn't have more debt.

I realise I would have pay SDLT on that £40k which is fine. However, I'm worried that this will then mean I have a huge SDLT bill to pay if I ever move house in London.

For example, if I sold my flat and bought one for ~£600k in London, would that 10% stake mean that my main residence then counts as a second home, doubling my SDLT liability? I'm worried that would be hugely expensive (+£20k) and I'd have to pay that extra again if I ever moved again in the future.

I tried to read through the GOV.UK rules on this but found it really confusing. I'm happy to just give her the money but I don't think she'd be comfortable with that.

Please could someone help. Should I just try to convince her to take the money without claiming any equity? Does the law have some exception for this case?

Many thanks,
Chris

justworriedabit

100% yes....

tuzz

Please could you clarify? Sorry. Are you saying that, yes, I would have to pay double the SDLT if I ever moved home in London?

justworriedabit

tuzz said:

Please could you clarify? Sorry. Are you saying that, yes, I would have to pay double the SDLT if I ever moved home in London?

"double"?

Second homes + attract an extra 3% at least

full tables below

https://www.primelocation.com/discover/buying/guide-to-the-3-stamp-duty-surcharge/#:~:text=If the second home you are buying is for your,joint with your child's name.

tuzz

I'm sorry - I don't mean to be ignorant.

So, just to be clear, owning a £40k stake in a property that I don't live in then counts as my main residence?

I'd have to pay the second homes SDLT surcharge on a house purchase of £600k and all future purchases?

justworriedabit

tuzz said:

I'm sorry - I don't mean to be ignorant.

So, just to be clear, owning a £40k stake in a property that I don't live in then counts as my main residence?

I'd have to pay the second homes SDLT surcharge on a house purchase of £600k and all future purchases?

Have you read the link that I posted? It explains everything but DOUBLE check, cross reference it.

There is a chance I've misunderstood you and if I have I apologise but read the link and see if it is applicable to.

Are you saying - the help you are giving ie part share is your second, but you have a main residence and you would sell that and move to another main residence? If so then just the one lot of stamp and people can nominate with is their 'main residence.

justworriedabit

ps

I think this is what you meant and I've referred to in my above post

https://www.gov.uk/tax-sell-home/nominating-a-home

HTH

justworriedabit

Btw

Much easier to lend money to sis and put a charge on the deeds, but consult a solictor re this.

tuzz

Oh, thanks. Yes - I think this applies to me:

>If the home you are buying directly replaces your main residence, you will not have to pay the 3% surcharge, even if you own an additional home(s) at the same time. 

My main residence is the property in London and I'd be replacing my main residence if I moved, even though I'd own 10% of my sister's house. I'll read that article again to double check but I think that's good news! Thank you.

I'm not familiar with a "charge on the deeds". I'll read in to that. Thanks

justworriedabit

No worries, thanks for the come back.  Hands up as I post honestly I think I misunderstood you initially.

Re the charge best way forward IMHO but consult a solicitor or you could as you said just gift the money and sis would be able to declare that to sols in funding her new place. (with a charge on the property, should things go wrong for sis and banks want to recover, you'd have an amount in it, ie not gift but as a lender but again consult solictors)

I hope it all works out for you, but as you are the one that is helping, do what you feel is right and I'm sure sis will appreciate that.

[Deleted User]

tuzz said:

Hello,

I live in London and own a small flat there (~£210k).

My sister wants to buy a house (not in London) and she can't quite raise enough to meet the asking price (~£340k).

She's about £40k short so I'd like to help her if possible. I'm fortunate enough to have some money saved up. One idea we had is that I take a small equity stake (~10%) in the property so that she wouldn't have more debt.

I realise I would have pay SDLT on that £40k which is fine. However, I'm worried that this will then mean I have a huge SDLT bill to pay if I ever move house in London.

For example, if I sold my flat and bought one for ~£600k in London, would that 10% stake mean that my main residence then counts as a second home, doubling my SDLT liability? I'm worried that would be hugely expensive (+£20k) and I'd have to pay that extra again if I ever moved again in the future.

I tried to read through the GOV.UK rules on this but found it really confusing. I'm happy to just give her the money but I don't think she'd be comfortable with that.

Please could someone help. Should I just try to convince her to take the money without claiming any equity? Does the law have some exception for this case?

Many thanks,
Chris

Providing you sell your main residence in London when buying a new main residence the higher rate of SDLT will not apply to the purchase.  If you buy a new main residence before selling your current main residence you will pay the higher rate of SDLT but have 3 years to sell the current main residence to reclaim the additional SDLT paid.

With the purchase of your sister's house I think the higher rate of SDLT will apply to the whole purchase and not just £40k.  You being a beneficial owner of your sister's home may cause issues if she is using a mortgage for the purchase.

See the HMRC manual for further information: https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09730