If we buy our daughter a flat, what can we do if she fails to repay us?
My wife and I would like to use this inheritance to buy our daughter a flat.We’ve seen a suitable place for £270,000 and we can afford to pay in cash.The plan is for her to pay us back at a rate of £500 a month.
However, my daughter is a bit of a dreamer and I’m worried she will not keep up the repayments. Is it possible to draw up a legal document saying we will take over the flat if she doesn’t pay us £500 a month?
At a rate of £500 a month, it would take 45 years for your daughter to clear this loan. That is an incredibly long time, even if she does keep up with the repayments.
Do you intend for her to repay the whole amount or is it part of a gift?
If you do want to put the agreement on a legal footing, then you could draw up a private ‘mortgage’. This would need to be formally recorded in a legal document with a charge placed on the property to secure your interest in it.
If you do this, you’ll need to make a few decisions. Will the loan be fixed for a specific period of time with late penalty charges? What will happen if your daughter falls behind with repayments?
Also consider helping your daughter with the deposit, rather than buying the house outright. You could then create a ‘declaration of trust’ to protect the sum you loan her. This document confirms the true ownership of a property in the proportions contributed by each party, regardless of the title entries at the Land Registry.
As there would be a restriction in your favour, it would be entered against the title at the Land Registry, meaning your daughter couldn’t sell the house without your permission.The amount you lent would be the first sum payable on the sale of the property.
Another option is to buy the house in your own name and rent it to your daughter. If she keeps up with the rental payments, you could transfer the property into her name at a later date – though you will pay 3% extra stamp duty as it won’t be your main home.
Abha Pandya is a barrister at Taylor Rose Solicitors.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.