Our brother wants to lend us money to help us buy a house - how to protect everyone’s interests?

Newstart212

Hello All, this is the situation we need help with:-

My sister, brother and I are buying a house, using inherited money, that my sister and I will live in, and that will hopefully generate an income for my sister and me (AirBnB). Our brother has a house of his own as well his business premises and part ownership in other properties.

If only my sister and I have our names on the deeds of the new house, it will be subject to stamp duty, but because our brother already has property, if his name is put on the deeds too, we will be liable for an additional 3% stamp duty. 

We would ideally like to all be equal partners in buying the house but as the additional stamp duty will add about 17K to the purchase price, we are trying to work out how to buy the house, without putting my brother’s name on the deeds. He has suggested we just put something in writing that sets out the situation (the money going into the house is inherited family money, we all want to protect it for the future). However my sister and I want to make sure that his third share of the property’s value is protected, and that our home is protected,  should unforeseen circumstances arise (eg. an accident involving liability, or one or more of us dying). None of us have, or will have, children.

We’ve read about putting a charge on the property - is this the most suitable option?

Has anyone been in this position before? We would be really grateful for any advice, as we’re going round in circles at the moment!

[Deleted User]

Newstart212 said:

Hello All, this is the situation we need help with:-

My sister, brother and I are buying a house, using inherited money, that my sister and I will live in, and that will hopefully generate an income for my sister and me (AirBnB). Our brother has a house of his own as well his business premises and part ownership in other properties.

If only my sister and I have our names on the deeds of the new house, it will be subject to stamp duty, but because our brother already has property, if his name is put on the deeds too, we will be liable for an additional 3% stamp duty. 

We would ideally like to all be equal partners in buying the house but as the additional stamp duty will add about 17K to the purchase price, we are trying to work out how to buy the house, without putting my brother’s name on the deeds. He has suggested we just put something in writing that sets out the situation (the money going into the house is inherited family money, we all want to protect it for the future). However my sister and I want to make sure that his third share of the property’s value is protected, and that our home is protected,  should unforeseen circumstances arise (eg. an accident involving liability, or one or more of us dying). None of us have, or will have, children.

We’ve read about putting a charge on the property - is this the most suitable option?

Has anyone been in this position before? We would be really grateful for any advice, as we’re going round in circles at the moment!

The names on the deeds are irrelevant as it is beneficial ownership not legal ownership that determines the SDLT liability.  If your brother were to simply lend you the money and have no beneficial interest in the property you could have a loan agreement drawn up and a charge secured against the property. 

Newstart212

Thanks, that is good information, is a charge on a property complicated to set up do you know?

pjcox2005

Perhaps check on the tax advice board. Potential options:

- Buy property first then brother who already owns a property buys a 1/3 from you. Does that mean only 3% surcharge on the 1/3 being bought, although you may have a duplication of stamp duty on it?

- Have you considered purchasing it through a company and then your brother buying shares in the business? May be useful if you are getting a BTL mortgage and high rate taxpayers as interest would be allowable.

Not sure if either work but I would think worth checking if it allows you to own as intended for a long term period.

Newstart212

Interesting ways around the problem - will investigate - thanks!

[Deleted User]

pjcox2005 said:

Perhaps check on the tax advice board. Potential options:

- Buy property first then brother who already owns a property buys a 1/3 from you. Does that mean only 3% surcharge on the 1/3 being bought, although you may have a duplication of stamp duty on it?

- Have you considered purchasing it through a company and then your brother buying shares in the business? May be useful if you are getting a BTL mortgage and high rate taxpayers as interest would be allowable.

Not sure if either work but I would think worth checking if it allows you to own as intended for a long term period.

How would the OP and sister make up the shortfall to buy the property in the first place? 

If purchased through a company the higher rate of SDLT would apply even if it is the only property the company owns. 

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09730