Interest Rolling Up - Advice Needed
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Sorry if I've misunderstood. I took your original "stay" to mean that the MIL wanted to stay where she was, but didn't have enough income to continue to do so and that you were trying to help her out now in exchange for a charge on her estate.
Apologies I should have been clearer. She lives in a property that until recently was her mothers. Sadly she passed away and my MIL will inherit half of the house. She has little other funds. She would like to stay in this house but Equity Release would only fund c35% of any house valuation, she needs 50% to buy the other benefactor out.
So she would like to stay where she is but couldn't afford to without help.0 -
Keep_pedalling wrote: »So more like a lone to buy a more expensive house, and nothing like equity release.
A bit of both I suppose, I should have made more clear, see reply earlier tonight.0 -
why does she need the cash up front? why can't she wait until she sells her current place like most people do?
what you propose to do is a private mortgage which she would use as bridging finance, ie bridges the time between buying her new place and repaying the loan using the proceeds from the sale of the old place. Again why the rush?
However you try to dress it up if she repays you 1p more than she borrowed then you will be liable to income tax on that interest. It is not an interest only loan, as that implies the interest is paid during the course of the loan but not the capital, it is a with interest loan repayable on maturity, since you want to get back more than you loaned her.
whilst allowing for death is of course an event to be considered, why do you expect that to be a risk when she is selling her property anyway? Just give her the loan, charge interest and pay a bit of income tax on the small amount of interest you will earn before she sells.
Apologies I wasn't very clear in my posts hopefully the above reply clarifies.0 -
Then you are simply proposing a secured loan.
If she cannot afford to pay interest now, then realistically it will have to be rolled up and you and your spouse will have to declare and pay any tax due on redemption?0 -
that is nothing like your opening post :mad:super_reds wrote: »Apologies I should have been clearer. She lives in a property that until recently was her mothers. Sadly she passed away and my MIL will inherit half of the house. She has little other funds. She would like to stay in this house but Equity Release would only fund c35% of any house valuation, she needs 50% to buy the other benefactor out.
So she would like to stay where she is but couldn't afford to without help.
you want to lend your MIL some money so she can buy out the part owner of the place she wishes to continue residing in until she is either dead or needs to move to a care home (whichever is first).
you expect to receive back more than you lent, and thereby protect your own money from the effects of inflation and/or make a profit from the transaction?
your options include (others may have additional ideas...):
1. place a charge on her property so it cannot be sold without you being repaid. The repayment comprising the capital sum plus interest at a rate to be agreed. You would pay income tax on the interest element when it is repaid, no escaping that.
2. place a charge on her property and take a % stake in the ownership of her property corresponding to the % of its value you have lent to her. On either death or sale you receive an amount which may (or may not) be more than you loaned, depending on house price inflation obviously. You would pay capital gains tax on the gain - if there is one.
3. loan her a lump sum, get her to record that she has received a loan without interest so that on her death the money is repaid to you. Obviously no interest/gain will arise in that case so no tax for you (it will be a debt for her estate so will leave less in the pot for other beneficiaries )0 -
that is nothing like your opening post :mad:
you want to lend your MIL some money so she can buy out the part owner of the place she wishes to continue residing in until she is either dead or needs to move to a care home (whichever is first).
you expect to receive back more than you lent, and thereby protect your own money from the effects of inflation and/or make a profit from the transaction?
your options include (others may have additional ideas...):
1. place a charge on her property so it cannot be sold without you being repaid. The repayment comprising the capital sum plus interest at a rate to be agreed. You would pay income tax on the interest element when it is repaid, no escaping that.
2. place a charge on her property and take a % stake in the ownership of her property corresponding to the % of its value you have lent to her. On either death or sale you receive an amount which may (or may not) be more than you loaned, depending on house price inflation obviously. You would pay capital gains tax on the gain - if there is one.
3. loan her a lump sum, get her to record that she has received a loan without interest so that on her death the money is repaid to you. Obviously no interest/gain will arise in that case so no tax for you (it will be a debt for her estate so will leave less in the pot for other beneficiaries )
Apologies again, short of taking you out for a sumptuous lunch not sure I can do much else!
I think you've summed up the options, option 1 is the preference and I was wondering of anybody had any possible options as to reduce the tax payable?0 -
The you are simply proposing a secured loan.
If she cannot afford to pay interest now, then realistically it will have to be rolled up and you and your spouse will have to declare and pay any tax due on redemption?
That's right, what I was trying to see if anybody had any bright ideas as to how to reduce that tax bill if possible?0 -
No, but I believe 'proper' (ie paid for) advice has already been suggested, and I'd recommend it. It has the advantage that the person giving it knows exactly which questions to ask, rather than relying on you giving what information you think is relevant.super_reds wrote: »That's right, what I was trying to see if anybody had any bright ideas as to how to reduce that tax bill if possible?
I know there's a possibility the interest you receive may push you into higher tax land, but again, a professional adviser can indicate what effects there might be, and what steps you could take to mitigate.Signature removed for peace of mind0
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