Stamp Duty - Helping Parent Buy

aforjeh

Hi

I wondered if anyone could give some advice on my scenario.

-I'd like to assist my parent with buying a property, approx 175K and I would contribute 30% or so.
- To avoid SDLT, I'd originally imaged just loaning her the money at no cost, and she should settle it via her estate.
- Parent however, would like the loan secured in some way on the house, such that in future I would be assured of getting my money back when they are 'finished with it' rather than it being drained down by care fees or anything else that might arise in future.

One way to satisfy the above, would be for us to be 'tenants in common' on the property.

However, doing so would incur '2nd home' stamp duty, approx £10 instead of the £0 or £1 my parent would pay on her own pre/post April.

Is there any way to avoid the SDLT, whilst still providing her some assurance that my loan is safe?

a) I wondered if it were possible for me to simply lend her the funds, so she could purchase on her own. Then, at some point post completion, she could settle that debt by adding me as 'tenant in common' in exchange for £40k of the debt. Since that would be a transfer of only £40,000 value, would that avoid SDLT? 

b) is there any way to add a person as having an 'interest' in the property, much in the way that a mortgage lender would. I.e. Santander can secure a loan on my house, and not pay stamp duty for the privilege. Or is this honour reserved for ... corporations, or licensed lenders or something?

c) or do I just need to pay it? :-)

I appreciate it seems like tax evasion in some way, but we see it as just a way for me to assist my parent, and the intention is not to get any financial benefit. I.e. even if I had an interest in the property, and it was worth 5 times more at time of sale... I would only be interested in getting back what I lent. No interest, no profit.

Thanks

user1977

You can simply have a legal charge registered over the property in the same way as any "normal" lender.

I assume there are no other lenders involved?

Bookworm105

as above you do not take co-ownership, you simply register a charge against the property for the value of the loan as would a mortgage lender

aforjeh

That sounds very simple, thanks.

Would there be a lesser degree of protection than with a tenants-in-common arrangement?

Or to put it another way, it's not something I've heard or read much about. Why would someone not want to do this if, for example, they were helping their children buy a property? I read a lot about people worrying about stamp duty etc in that scenerio?

EssexHebridean

aforjeh said:

That sounds very simple, thanks.

Would there be a lesser degree of protection than with a tenants-in-common arrangement?

Or to put it another way, it's not something I've heard or read much about. Why would someone not want to do this if, for example, they were helping their children buy a property? I read a lot about people worrying about stamp duty etc in that scenerio?

Because as a general rule, there will also be another lender involved in that scenario as there will be a mortgage as well, and that lender will veto a second charge by way of the parents charge. 

aforjeh

I see, makes sense. Let's hope it makes sense to my solicitor! Ta

chalky_white_2

The reason most people do not do a legal charge, is because they want the loan to grow with the value of the property (i.e have equity), which then would result in SDLT consequences. 

Many high street banks and other lenders do not care for second charges from parents. They take a first ranked legal charge and are fully protected. However, everyone seems to think they will (though do check your individual lender’s position on this).

aforjeh

OK, @chalky_white_2 .. If I understand you correctly... 

- if the house were to increase in value say 20%
- the value of the loan/legal charge has not changed
- so the borrower paying me back 20% amount would guaranteed, whereas a 'tenant in common' would automatically get the 20% gain
- and if a larger value were paid back to the lender voluntarily (or as part of the loan agreement), that would be a 'chargeable consideration' for SDLT equal to the difference between the original loan, and the repaid amount and subject to SDLT on that amount?
- whereas a simple repayment of the loan amount would not be subject to SDLT, as there is effectively no 'chargeable consideration'?

Ta

jennifernil

Putting a charge on the property will be the easiest way to do it, will safeguard the amount you lend, and satisfy your mother’s wish for your money to be secured should she need to pay for care.  The cost of doing this through your solicitor should not be huge.