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Home loan

13 March 2012
Issue: 4345 / Categories: Forum & Feedback
A builder has lent money to his niece to enable her to extend her house. This will represent about 20% of the value of the converted property and they have agreed that an equivalent percentage will be repaid to the uncle from the proceeds of any future sale. Will this be an income or a capital receipt?

My client is a builder who has been running a successful business for many years. His niece and her husband had purchased a small house a few years ago as their home.

They are now expecting twins and want to extend the house to provide extra room and my client has loaned them £50 000 to enable them to do this.

My client does not want interest to be paid on the loan but there is an agreement that if and when the property is sold the niece will repay him one-fifth of the sale proceeds based on a post-conversion value of the property of £250 000.

He has asked me what if any tax implications might arise.

This has me stumped; any gain doesn’t seem to be income but he doesn’t own an interest in the property.

Furthermore knowing the client and...

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