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

davidmcn

Leaving the SDLT point aside - is a mortgage lender going to be happy with you jointly owning your "sister's" property? That would complicate matters considerably. 

SDLT_Geek

Lover_of_Lycra said:

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

Great, some sense on this thread at last!  I agree with @Lover_of_Lycra that:

• OP taking an equity share in the sister's property will mean the extra 3% SDLT applying to the whole of the price of the sister's house, not just on OP's equity share.
• On the present rules, OP would not expect to pay the extra 3% SDLT if selling OP's present home (OP's "residence" is where OP lives) when buying a new home to live in.  It would not matter that OP has a share in another property.  This is because the "replacement exception" applies (that is to say, condition D is not met).  See SDLTM09800 on the section of the Manual which @Lover_of_Lycra has linked.

SDLT_Geek

justworriedabit said:

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.

Oh dear on dear.  This is not helping!  If a gift is made of the money, then why on earth would there be a charge back on the property to OP for the amount??  It is either a gift or a loan!  Not both. 
(Tuts, and shakes head sadly.)

Later edit:  Reading again what @justworriedabit had stated, I can now see that the gift and the charge were intended to be offered as alternative routes, not combined.  Apologies.

SDLT_Geek

davidmcn said:

Leaving the SDLT point aside - is a mortgage lender going to be happy with you jointly owning your "sister's" property? That would complicate matters considerably. 

Thank you @davidmcn, some more (much needed) sense on this thread.  But many of the earlier postings are misguided.

Sistergold

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?

It does not matter what % stake you own. Even 0.000001% will mean extra stamp duty when you buy. 

SDLT_Geek

Sistergold said:

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?

It does not matter what % stake you own. Even 0.000001% will mean extra stamp duty when you buy. 

This is not right, if you are talking about the purchase of a future home by OP.  What about the under £40,000 rule (Condition C)?  What about the replacement exception (Condition D)?

Perhaps you are thinking of the rule that if OP takes any share at all, however small, when OP's sister buys, then, because OP owns another property, the whole price of the joint purchase with the sister will incur the 3% SDLT surcharge.

justworriedabit

SDLT_Geek said:

justworriedabit said:

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.

Oh dear on dear.  This is not helping!  If a gift is made of the money, then why on earth would there be a charge back on the property to OP for the amount??  It is either a gift or a loan!  Not both. 
(Tuts, and shakes head sadly.)

Why have you misquoted me?
With a charge, it is not a gift and if things go wrong, the brother may be entitled to his cash back if any value is left just like the other lenders.
If it is a gift, then if things go wrong, the money belongs to his sis and not him some banks can take control of that.
As stated bro needs to speak with a solictor and as stated by me last night inc a link from the Gov site, he does not have to pay extra stamp on his main residence and if he has more than one and moves around can declare a main residence.

I'm not sure what the "oh, dear, oh dear" was all about as my post was accurate.

HTH

SDLT_Geek

justworriedabit said:

SDLT_Geek said:

justworriedabit said:

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.

Oh dear on dear.  This is not helping!  If a gift is made of the money, then why on earth would there be a charge back on the property to OP for the amount??  It is either a gift or a loan!  Not both. 
(Tuts, and shakes head sadly.)

Why have you misquoted me?
With a charge, it is not a gift and if things go wrong, the brother may be entitled to his cash back if any value is left just like the other lenders.
If it is a gift, then if things go wrong, the money belongs to his sis and not him some banks can take control of that.
As stated bro needs to speak with a solictor and as stated by me last night inc a link from the Gov site, he does not have to pay extra stamp on his main residence and if he has more than one and moves around can declare a main residence.

I'm not sure what the "oh, dear, oh dear" was all about as my post was accurate.

HTH

I think I had misunderstood you.  Reading your earlier post again, I can see what you mean now, that you were putting a gift and a charge as alternatives, rather than combining them.  Please accept my apologies.

justworriedabit

SDLT_Geek said:

justworriedabit said:

SDLT_Geek said:

justworriedabit said:

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.

Oh dear on dear.  This is not helping!  If a gift is made of the money, then why on earth would there be a charge back on the property to OP for the amount??  It is either a gift or a loan!  Not both. 
(Tuts, and shakes head sadly.)

Why have you misquoted me?
With a charge, it is not a gift and if things go wrong, the brother may be entitled to his cash back if any value is left just like the other lenders.
If it is a gift, then if things go wrong, the money belongs to his sis and not him some banks can take control of that.
As stated bro needs to speak with a solictor and as stated by me last night inc a link from the Gov site, he does not have to pay extra stamp on his main residence and if he has more than one and moves around can declare a main residence.

I'm not sure what the "oh, dear, oh dear" was all about as my post was accurate.

HTH

I think I had misunderstood you.  Reading your earlier post again, I can see what you mean now, that you were putting a gift and a charge as alternatives, rather than combining them.  Please accept my apologies.

Good afternoon

We all misread posts but not everyone has the capacity to acknowledge their mistake. Many thanks for the apology, sincerely accepted.

Have a nice day. 

poolboy

Yes take out a charge on your sisters property to the value of the gift, it will be registered on the deeds and you will be after the mortgage lender.  Be very specific at the outset with yr sister how, when and how much will be repaid.  I had a similar charge once and nothing was agreed.  It really protects your gift in case your sister separates from her partner, your gift is protected by a charge. On property sale the charge is paid off, I think it's called resolved.