Loan to daughter

[im2020]

I want to lend my daughter �100K to help her buy her first house.  This represents 40% of the purchase price.  She will fund the rest with a mortgage.  I only want repayment if and when she sells the house, at which time, if she needs it, I will make her another loan to help her buy her next house.

Since I won't be charging her interest we have agreed that my repayment will be 40% of the proceeds of any sale.  (I appreciate that in theory this could be less than �100K if property values fall.)

We shall be using a solicitor to draw up an agreement between us but I would welcome any views on:

(a) the degree to which this sort of loan is commonplace

(b) any pitfalls that we should be aware of.

Thanks in advance for any help.

[Mrs_Pegasus]

Firstly, would you like to adopt me!! LOL

Seriously, there are probably many pitfalls but the one that stands out for me is the tax implications.  It is possible you could both purchase the property and hold the asset as 'tenants in common' where you could state the split 40/60.

Care would also need to be taken should your daughter meet someone who in time may try to make a claim on the property if they were to marry.

Obviously, your solicitor will hopefully know all the ins and outs of such an arrangement but i certainly know of people who have bought properties for their children especially when they went to university and used it as an investment and to avoid high rents for digs etc.

[Didwot]

This type of arrangement is fairly usual.
As your share of the property will not attract the "Principal Residence" relief any profits will be subject to Capital Gains Tax, and on a sale and purchase of another property any gain cannnot be "rolled over" and any tax would have to be paid.
If the property is purchassed on joint names as tenants in common then you will also be liable for the mortgage. This only becomes a problem if your daughter fails to pay the mortgage, as it coluld affect your credit rating.
the alternative, and more usual arrangement, would be for the property to be purchased in her sole name, and yor interest to be set out in a deed of trust. The risk there would be if your daughter decided to be a complete rogue, remortgage or sell the property, and pocket the proceeds.
In either case your interest would come before any claims by boyfriends, husbands, creditors etc.

[im2020]

Thank you Mrs_Pegasus and Didwot.  Most helpful.

 

  I looked further into your sole owner suggestion, Didwot, and I think this should be the path.  As a little safeguard against your apocalypse scenario I gather that at the outset (before daughter goes off the rails!) we can register my interest as a restriction with the Land Registry.

Thanks again

[Didwot]

Yes, you can register a restriction (using form RX1 and asking for the standard "sole proprietor" restriction in Fom A to be imposed. This reads
No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court.
You will readily appreciate that a complete rogue can appoint another complete rogue to become a second trustee for the purpose of a proposed disposition.
Of couse your daughter would never do such a thing, but you did ask about the pitfalls.