What do I need to consider before I buy a house for my nephew to renovate?

Our lawyer Fiona McNulty answers your questions
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Question: I have some money to spare at the moment. My nephew is a good builder, so I have an idea. I want to give him £500,000 so he can buy a mews house I've spotted near me for £390,000 and use the rest of the cash to do it up.

I would be happy for the house to be bought in his name and for him to live there while he's renovating it but I appreciate that I must protect my funds, so how should I go about it?

Answer: Inform your solicitors of your intentions as they will involve both of you in the transaction. You will both be clients of the law firm and will both need to provide identification documents to your solicitors. You will also both need to confirm the source of the funds, to satisfy anti-money laundering regulations.

Whether the property is bought in both your names, or in your nephew's sole name, there should be a document known as a declaration of trust setting out your respective shares in the proceeds of sale and also dealing with other matters, such as who should pay the outgoings and when the property should be sold.

If bought in your nephew's sole name, you may decide to protect your interests by having a formal loan agreement with him and have this secured against the property as a legal charge. This document should deal with whether interest is payable on the loan, when it is to be repaid etc. There should also be a restriction registered against the title. If you think you may get involved in more projects like this with your nephew, consider a partnership.

What's your problem?

If you have a question for Fiona McNulty, email legalsolutions@standard.co.uk. We regret that questions cannot be answered individually.

Fiona is a partner in the residential real estate team at Thring LLP (www.thrings.com).

These answers can only be a very brief commentary on the issues raised and should not be relied on as legal advice. No liability is accepted for such reliance. If you have similar issues, you should obtain advice from a solicitor.

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