Unusual P2P case

[Jeremy Harris]

I'll have to be a bit cryptic here, to protect identities, so treat this as a hypothetical case.

 

Say someone was selling a house and wanted a certain amount of money for it as a minimum acceptable price.

 

Say that person was approached by a friend and former colleague of long standing, who needs to buy a house for an ageing parent (who is also known to the person selling the house.

 

Say the person selling the house knows pretty much exactly what the income of the friend and former colleague is, know he has no mortgage and knows he is saving a couple of thousand pounds a month, and has been for years.

 

The friend approached the person selling the house and explains that he wants to buy the house, for a price over the asking price, and has access to enough savings to pay the whole price and legal fees, but not enough to pay the very high stamp duty payable on a second home (his mother's home has yet to be sold).

 

The person selling the house sas enough savings to pay the stamp duty on the buyers behalf, and has rock-solid trust in his friend and former colleagues ability to pay the money back within 6 months at the most.  The buyer is prepared to make a peer to peer loan, at zero, or a very low interest rate, to cover the stamp duty payment, and has absolute trust in the friend and former colleagues ability and intention to pay the loan back on time, in fact he suspects the loan would be paid back early.

 

What does the collective mind here have to say on the best way forward, bearing in mind that the vendor knows full well that this is an unsecured loan that would not be regulated by any official body?

[Guest Alphonsox]

It would appear to be the unsecured nature of the loan that is the issue - no tax is being avoided so HMRC are happy.

- What happens if the Friend dies the day after the loan is made ? Does the Vendor take the hit ? (£9K on a £3000K home as an example), or does the Vendor try and claim against the estate of the Friend.

_- What happens if for some unforeseen event (Ill health ?) the Friend is unable to pay back the loan ?

 

Is the Friend the final owner of the house or the Friends mother ?

[Cpd]

I am sure better minds will be along shortly but when I was in Australia a group of some semi close friends got the opertunity to buy the perfect property big enough to house multiple families, it was a cash sale and the pressure was on to raise the finance but they were short $60000 and stood to loose the opportunity if they did not come up with the cash asap. They approached me and asked if I could help out. I took them at there word that they would and could pay back the cash and transferred it into the appropriate account. Job done. They got the house and everyone lived happily ever after. I lent  them the money as I believed in them and their dream,  there was a slim chance that it could have gone horribly wrong and I would be out of pocket the full amount but at the end of the day I could have afforded the loss and life goes on. As it turned out it all went well and I got my cash back 5 months later plus a few thousand as a thankyou bonus !  As i said I am sure there are much better ways to do it but hay ho. Not a lot of help I know but it’s one way to look at it when it’s all stripped down to bare bones. 

[AliMcLeod]

The seller and the buyer will have to agree how monies will be transferred to pay the additional stamp duty. Funds provided to solicitors as part of a house purchase have to go through money laundering checks so they will have to be clear to the solicitor(s) what is happening and make it clear to them that there is nothing underhand going on here.

 

For the reasons that @Alphonsox gives, it would also be advisable for the loan to be written into a legal agreement, perhaps as a preferential loan which takes precedence in any estate management should the worst happen to the buyer.

And, assuming the eventual owner of the sellers house will be the mother, when her house does sell, the additional stamp duty (3%) will be refunded (although there is a limit of, IIRC, 36 months) so some funds could be repaid sooner if that house sells quickly.

Edited July 27, 2018 by AliMcLeod

[Mikey_1980]

They could just defer the payment of the stamp duty 

 

HM Revenue & Customs requests that stamp duty be paid in the 30 days after contracts are signed in a house purchase, but what happens if you don't? Well, if you pay the tax up to 12 months after the contracts are signed then HMRC will levy a small fee – 10% of the duty - capped at £300.
 

[Hecateh]

How about the person pays the stamp duty but defers an equivalent part of the purchase price.

 

Financially the same but possibly less issue about legally arranging the loan.

 

May be totally irrelevant but was my first thought

[Jeremy Harris]

32 minutes ago, Alphonsox said:

It would appear to be the unsecured nature of the loan that is the issue - no tax is being avoided so HMRC are happy.

- What happens if the Friend dies the day after the loan is made ? Does the Vendor take the hit ? (£9K on a £3000K home as an example), or does the Vendor try and claim against the estate of the Friend.

_- What happens if for some unforeseen event (Ill health ?) the Friend is unable to pay back the loan ?

 

Is the Friend the final owner of the house or the Friends mother ?

 

Ultimately the friends mother will be the owner, oncer her house has sold, but for the interim period the friend will own it, which creates the very high stamp duty issue, as the purchase would be deemed to be a second home, as far as HMRC are concerned, during the period between them buying it for his mother and the sale of his mother's house.

 

29 minutes ago, Mikey_1980 said:

They could just defer the payment of the stamp duty 

 

HM Revenue & Customs requests that stamp duty be paid in the 30 days after contracts are signed in a house purchase, but what happens if you don't? Well, if you pay the tax up to 12 months after the contracts are signed then HMRC will levy a small fee – 10% of the duty - capped at £300.
 

 

That sounds, to me. like the perfect solution, thanks.  The issue here isn't paying the money, however much it is, it's about timing the payments so that they can:

 

1.  Save enough to pay the stamp duty within a reasonable time frame ( I'd guess around 4 to 5 months)

 

2.  Buy the house for the asking price plus enough to keep the vendor happy, and exchange contracts on a mutually agreeable date.

 

I shall enquire further about deferring the payment of stamp duty, as that sound like the perfect solution to this dilemma, especially as the vendor has a personal interest in helping a friend and former colleague out, yet staying within the letter of the law (both having been involved in an occupation where strict adherence to the law and rules of evidence was part of everyday life).

[lizzie]

@JSHarris I suggest the relevant party consults their lawyer. There are ways around these situations on a short term basis and there are stamp duty specialists that a lawyer will have access to for written advice.  

[jayroc2k]

This is an old thread, but one option would be to consider the stair casing model used by shared ownership.

 

You sell a percentage under 80% on day 1, stamp can be elected to be paid on day 1 or on the day the ownership exceeds 80%, this solved the stamp duty payment date.

 

However, the stamp will be paid at the future stamp rate as you are not locking in today's stamp duty rate. Also, the stamp will be on the future value, although I won't worry about that too much, unless you think house prices are going up meaningfully.

 

You can stair case many times which means the seller can still retain some ownership if the buyer gets into difficulty (illness or death).

 

On a separate note, I have lent large sums to friends in the past and refused to lend to others based on a few simple questions i honestly ask myelf

1. is this a need or a want

2. can the person tighten their belts when things are tight financially

3. will the person subordinate payments to me because they need to upgrade their car (or similar non priority purchases)

4. if the above are satisfactory, I then ask myself, if they are ill or made redundant, will I be happy for an almost indefinite deferral of payment. This is where people get bitter and fall apart, if you make a friend/family repay a loan when they are in hardship then prepare for a fallout.

5. never lend your survival fund

 

If borrower fall ill, lending institutions have legal means to collect the debt, the borrowers also have legals protections via insolvencies and bankruptcies, the system works. 

 

[Carrerahill]

On 27/07/2018 at 20:25, JSHarris said:

I'll have to be a bit cryptic here, to protect identities, so treat this as a hypothetical case.

 

Say someone was selling a house and wanted a certain amount of money for it as a minimum acceptable price.

 

Say that person was approached by a friend and former colleague of long standing, who needs to buy a house for an ageing parent (who is also known to the person selling the house.

 

Say the person selling the house knows pretty much exactly what the income of the friend and former colleague is, know he has no mortgage and knows he is saving a couple of thousand pounds a month, and has been for years.

 

The friend approached the person selling the house and explains that he wants to buy the house, for a price over the asking price, and has access to enough savings to pay the whole price and legal fees, but not enough to pay the very high stamp duty payable on a second home (his mother's home has yet to be sold).

 

The person selling the house sas enough savings to pay the stamp duty on the buyers behalf, and has rock-solid trust in his friend and former colleagues ability to pay the money back within 6 months at the most.  The buyer is prepared to make a peer to peer loan, at zero, or a very low interest rate, to cover the stamp duty payment, and has absolute trust in the friend and former colleagues ability and intention to pay the loan back on time, in fact he suspects the loan would be paid back early.

 

What does the collective mind here have to say on the best way forward, bearing in mind that the vendor knows full well that this is an unsecured loan that would not be regulated by any official body?

Having been involved in a loan before for someone we instructed a solicitor to draw up a "contract" it was loose in as much as neither of us even really felt it necessary we just created it and filed it, end of. It was just a safety net, it didn't even stipulate payment terms or anything just a very broad form of protection. So it was written, signed, witnessed etc.

 

I cannot remember the full details of it, it was over a decade ago, but it was more of a security that if something happened to the person the money was lent to, their estate would accept there was a liability to me there was also something that said the loan had to be repaid within 3 years and at that I then had the ability to take them to court if they didn't meet this obligation, the period was more like 1 year, so we picked 3 to give a very comfy buffer. 

 

I think a small legal firm would charge £250 for something like that and just add it to the final sum (which you must also agree on the legal document).

 

EDIT: Just realised someone resurrected an old post... sigh. 

 

Edited February 4, 2019 by Carrerahill

[eandg]

Deleted - wrong thread. 

Edited October 29, 2019 by eandg