Transfer of loan charge on property to company

Parent has loaned his child for the purchase of a property. The loan has a legal charge on property.

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A parent has given a loan to his child to purchase a BTL property in the child's name. The loan has a first legal charge on the property. The parent wants to transfer the legal charge to his own company, so that the company has the legal charge over the property. Are there any tax implications on this on the transfer? How would that even work in the company's accounts when the company did not actually loan the money?

Any thoughts would be appreciated.

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By David Ex
05th Apr 2022 16:26

My question would be why.

Or are you getting confused between the loan and the security for the loan?

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By Accountee19
05th Apr 2022 16:35

Me too.

Just the security for the loan.

But it appears the parent wants to give away the loan funds to the children through the family investment company, but then I suppose this could happen by simply gifting those funds or transferring the legal charge directly to the children.

Thinking out loud, making the company the creditor may create a strange situation where the company is entitled to the loan repayment, and thus the transfer be an initial income to the company(?)(!).

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Replying to Accountee19:
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By David Ex
05th Apr 2022 16:50

Accountee19 wrote:

Me too.

Just the security for the loan.

So the company would be acting as guarantor for a loan the father has made personally to the daughter?

I guess the company is giving something to the father but difficult to put a value on it and not sure how it would be taxed.

In accounting terms, is the loan guarantee a contingent liability? Do those still exist?

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By Accountee19
05th Apr 2022 17:02

Not so - the company would take on the legal charge of the loan. The father originally made the loan and has the legal charge over the property, but he wants the company to have the legal charge over the property.

So the company is not taking on any guarantor role.

I hope that makes sense.

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Replying to Accountee19:
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By David Ex
05th Apr 2022 17:10

Accountee19 wrote:

Not so - the company would take on the legal charge of the loan. The father originally made the loan and has the legal charge over the property, but he wants the company to have the legal charge over the property.

So the company is not taking on any guarantor role.

I hope that makes sense.

I’m getting confused.

A charge is made to secure a loan and the company has not made (or become party to) a loan.

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Replying to David Ex:
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By Accountee19
05th Apr 2022 17:15

Sorry if I am not making sense.

The father wants to transfer his charge (not the loan) to the company. Yes, the company did not make the loan.

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Replying to Accountee19:
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By David Ex
05th Apr 2022 17:18

Accountee19 wrote:

Sorry if I am not making sense.

The father wants to transfer his charge (not the loan) to the company. Yes, the company did not make the loan.

I’m not a lawyer but the company has nothing to secure against the property.

The father currently has a loan and security. If the plan comes to fruition, the father has a loan and no security.

I’d tell them to speak to a lawyer and come back if/when they decide what can be done.

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Replying to Accountee19:
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By Tax Dragon
05th Apr 2022 17:19

Accountee19 wrote:

Me too.

What was the answer when you asked? (I'm not sure you have understood what the client is proposing. More accurately, I don't understand it and that makes me wonder whether you do. Though, as we all know, IANAL. IAIPNAPL. But posting client's answer to "why?" here sure would help.)

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By Accountee19
05th Apr 2022 17:25

I haven't asked why yet, but it may be a good idea. I suppose it's the "what" that mattered most at the start since, regardless of the motive, I wanted to know if there were any tax implications.

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By Tax Dragon
05th Apr 2022 17:33

I'm not convinced the client understands the "what" either. As David intimated, detaching the security from the loan sounds like gobbledegook.

https://youtu.be/0u7sa6WFhxg

(Mum loved this. Which was great for me - the whole series was used in history lessons at school.)

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By paulwakefield1
06th Apr 2022 08:20

I am just trying to grasp what happens if the daughter defaults and the charge is exercised. IANAL either but I have a suspicion there would be an almighty mess (technical accounting and tax term).

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By Hugo Fair
06th Apr 2022 13:38

As the third person to declare IANAL, this should be a hefty hint that it is a lawyer that OP needs initially ... and only if/when it is clear what is actually proposed (and indeed whether that is feasible) will it be worth considering accounting or taxation questions.

The loose wording throughout means that:
(a) the thread is less exciting than I expected (the sub-title suggested a novel form of purchasing property by bartering your children in exchange);
(b) we may (including OP) be chasing the wrong tail.

AFAIK a legal charge on the property cannot belong to the Loan, but to the provider of the Loan.

So "parent wants to transfer the legal charge to his own company" *may* have nothing to do with the Loan ... there may be a route such that the charge is assigned to the company (presumably in return for some sort of consideration paid to the parent)?

But who knows what is being proposed (certainly no-one on this page), my only 'advice' (yes I know) to OP is preferably to get a lawyer's opinion on whatever is being proposed - but at the very least to get from the parent (client?) a written document of the proposed transaction before passing any comment whatsoever.
Or, to follow TD's non-advice, ask Baldrick ... from whom you'll have an equal chance of extracting a relevant answer.

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Replying to Hugo Fair:
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By Accountee19
06th Apr 2022 14:15

I appreciate your contribution. In trying to tie up the loose ends, the proposal could be re-worded more accurately as the following:

A parent has loaned money to his child for the child to purchase an investment property. The parent has a legal charge over the property. The parent wants to transfer his legal charge to his company. The result would be that the company has the legal charge over the property. The loan itself is not transferred. No consideration is given by the company for acquiring the legal charge.

If that makes more sense, would you have any further perspective on the tax and accounting implications?

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Replying to Accountee19:
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By Leywood
06th Apr 2022 14:43

Why would you transfer a legal charge and not the loan?

I disagree that you are trying to tie up loose ends, you have a loose start position.

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By paulwakefield1
06th Apr 2022 14:32

The general advice above still stands. Apart from the obvious question of "Why?", the purpose of a legal charge is to provide security to a lender. If the security and lender are separated as proposed, it seems to defeat that and any default would potentially cause some strange consequences.

I would suggest asking the question Why? and then pointing to the lawyer's door.

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By Accountee19
06th Apr 2022 15:10

A general "thank you" to everyone for their contributions. It appears the all-pervasive WHY is my next mission to investigate. I will certainly do so.

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By Hugo Fair
06th Apr 2022 16:12

Don't forget the WHAT & HOW (of the proposed actions to achieve the objectives of WHY)!

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Replying to Hugo Fair:
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By Accountee19
06th Apr 2022 16:47

At least we have the WHO ;)

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By Leywood
06th Apr 2022 17:18

Are you sure? When you start asking ,you might find thats different too ;-P

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