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.
Replies (19)
Please login or register to join the discussion.
My question would be why.
Or are you getting confused between the loan and the security for the loan?
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?
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 The father originally made the loan and has the legal charge over the property, but he wants the company to have the legal charge over the property.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.
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.
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.)
I'm not convinced the client understands the "what" either. As David intimated, detaching the security from the loan sounds like gobbledegook.
(Mum loved this. Which was great for me - the whole series was used in history lessons at school.)
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).
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.
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.
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.