best way to help sister with deposit

[SluffMcDuff]

I want to help my sister buy a flat by helping with the deposit. There are three ways I can think of doing this:

1- go in as a joint buyer - will pay capital gains on any increase in value?
2- loan her the money
3- gift her the money, with a handshake agreement she will gift me in return when she sells. If doing this, if she gifts me more in return as the property has gone up in value, is this all above board or is it evading capital gains on a loan/property sale?

Any suggestions as to the best way to do this appreciated.

[Charlie1986]

you could ask our solicitor to draw up a deed of trust for the money if you decide to loan her.

Or you could gift her the deposit and fill out the paperwork accordingly from the mortgage provider.

[Olf]

Make it contractual - as much as you love her / she loves you / you're family there's alway something goes wrong when money's involved.

[Dave350]

1) Joint Buyer

Also make sure you agree on different circumstances where you can sell, or she can buy you out etc to avoid any arguments later down the line.

[anonymous-user]

SluffMcDuff said:

I want to help my sister buy a flat by helping with the deposit. There are three ways I can think of doing this:

1- go in as a joint buyer - will pay capital gains on any increase in value?
2- loan her the money
3- gift her the money, with a handshake agreement she will gift me in return when she sells. If doing this, if she gifts me more in return as the property has gone up in value, is this all above board or is it evading capital gains on a loan/property sale?

Any suggestions as to the best way to do this appreciated.

The first two plus outright gift are the options really. Your third is a bit of a sham, being an "off the books" variant of your 1. or 2.

Best way to do it depends on what you want to get out of it. If you want a share of the house and so a share of the increase in value, choose 1, though you're right that you will have a potential CGT liability down the road.

If you don't want a share of the house but want an arm's length relationship, choose 2. Issues there are what (if any) interest you charge, and whether your sis repays ppal and int all in one hit on sale, or pays you off over time, or just pays you interest over time and capital on sale. Here presumably you're making money on the interest charge (whether you could offest a notional interest rate that you'd be paying to borrow the money, I have no idea - an accountant's what you need there), which is (I am pretty sure) a taxable gain. Your 3. is a sham, in that the two of you are either disguising capital appreciation (ie your 1) or accrued interest (ie a type of your 2) in the inflated "re-gift". So really a means of you evading tax on your profit (capital appreciation or interest).

Gifting outright is the third option, but that sounds like it isn't on the table.

Option 2 is the most straightforward, once you've worked out what gets repaid and when. And what is/isn't to happen if your sis misses payments.

FWIW when we bought our first house, my Dad lent us what seemed then like a fair chunk of cash to help with the deposit. No documentation, no interest, just an understanding that we'd repay it as soon as we could. Which we did, because we didn't really like having to borrow it from him inthe first place...

[Sir Bagalot]

You only have two options. This is from someone who has seen someone get fked over by his brother regarding a five figure sum.

1/ Do it on a handshake. Agree how you will be repaid, whether it will be the same sum back with 3% interest, or a % of the value of the property. Be warned, it's on a handshake so you may get fked over.

2/ Get it drawn up in a contract as to method of repayment.

Me? I'd be going for Option 2

[SluffMcDuff]

Thanks all for your advice.

Certainly looks like an officially drawn up loan is the best option.

Would she have to declare this to her mortgage company as a debt, and would it be likely to reduce the amount she could borrow, even if there were no regular repayments (repaid on sale of property)