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  • FIRST POST
    • Motheroftwoboys
    • By Motheroftwoboys 8th Oct 16, 5:58 PM
    • 2Posts
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    Motheroftwoboys
    Paying off someone else's mortgage
    • #1
    • 8th Oct 16, 5:58 PM
    Paying off someone else's mortgage 8th Oct 16 at 5:58 PM
    Hi all,

    I have savings and am thinking of paying off my dad's mortgage; he's a single man and has worked so hard. I don't think he has a great amount left to pay, he's been in the house ten years now but has told me that he won't be able to afford to retire before he is 70 (he has no pension) and is currently just over 60 years old.

    I was wondering what the tax implications of this are? I was hoping to make a one off payment (as long as there are no fees on his mortgage to do this) to make him mortgage free, or whatever way we could do this to avoid any additional costs mortgage wise.

    Am I right in thinking it would be inheritance tax, and he would have to pay this if I were to die within the next seven years? Then if I were to live over seven years there would be no tax?

    I do ask for replies to be quite basic please! I'm not too confident in my understanding of policies etc with HRMC.

    Thank you for any help.
Page 1
    • badger09
    • By badger09 8th Oct 16, 6:23 PM
    • 4,266 Posts
    • 3,480 Thanks
    badger09
    • #2
    • 8th Oct 16, 6:23 PM
    • #2
    • 8th Oct 16, 6:23 PM
    Hi all,

    I have savings and am thinking of paying off my dad's mortgage; he's a single man and has worked so hard. I don't think he has a great amount left to pay, he's been in the house ten years now but has told me that he won't be able to afford to retire before he is 70 (he has no pension) and is currently just over 60 years old.

    I was wondering what the tax implications of this are? I was hoping to make a one off payment (as long as there are no fees on his mortgage to do this) to make him mortgage free, or whatever way we could do this to avoid any additional costs mortgage wise.

    Am I right in thinking it would be inheritance tax, and he would have to pay this if I were to die within the next seven years? Then if I were to live over seven years there would be no tax?

    I do ask for replies to be quite basic please! I'm not too confident in my understanding of policies etc with HRMC.

    Thank you for any help.
    Originally posted by Motheroftwoboys
    Basically, if you die within 7 years of giving your dad an outright gift, and if your estate (the money/value of assets including the gift) when you die, is more than £325k, there would be some inheritance tax due.

    Your dad wouldn't have to pay it, it would be paid by the executors of your will before any money you have left to people could be paid out.

    If you are married, the situation is slightly different.

    How much are you thinking of giving your dad? You can give away up to £3k each tax year without any inheritance tax implications.
    So, you could give him £3k now, and another £3k on 6th April next year.
  • jamesd
    • #3
    • 8th Oct 16, 7:01 PM
    • #3
    • 8th Oct 16, 7:01 PM
    It'll be more efficient to give him money for pension contributions because he can potentially make £720 a year on £2880 of contribution if he has unused personal allowance available and no job.

    If he's working he can pay in more and potentially make more if he waits a while. can take out the 25% tax free lump sum as soon as he likes. Taking any of the 75% taxable portion would limit him to no more than £10,000 of pension contributions a year for the rest of his life, from himself and anyone else.

    His employer is probably now required to enrol him into a workplace pension and pay in some of their own money. That's another useful way of increasing the value of whatever you give.

    Age 55 is the minimum age to get at most pensions so he can do it now. But any money taken from the 75% is added to his normal taxable income. This money is paid via PAYE operated by the pension company.
    • bigfreddiel
    • By bigfreddiel 8th Oct 16, 7:21 PM
    • 4,072 Posts
    • 1,865 Thanks
    bigfreddiel
    • #4
    • 8th Oct 16, 7:21 PM
    • #4
    • 8th Oct 16, 7:21 PM
    Why does your dad have no pension?

    If you pay off his mortgage will that allow him to give up work? I don't think so, it will just reduce his outgoing so, so he will keep on working.

    Has he got a state pension forecast?

    The advice for you to pay into a pension is good. Do it now.

    Make sure your dads company is doing so as well.

    In ten years the mortgage will be paid off, and your dad has a nice pension.

    One things for sure time flies for us oldies, I'm 65, ten years will fly by.

    For you it will drag and seem to take forever.

    Good luck fj
    • xylophone
    • By xylophone 8th Oct 16, 10:31 PM
    • 19,182 Posts
    • 10,895 Thanks
    xylophone
    • #5
    • 8th Oct 16, 10:31 PM
    • #5
    • 8th Oct 16, 10:31 PM
    State Pension Forecast

    https://www.gov.uk/check-state-pensionis your father self employed?

    How much is outstanding on his mortgage?
    • redux
    • By redux 9th Oct 16, 12:27 AM
    • 15,567 Posts
    • 18,364 Thanks
    redux
    • #6
    • 9th Oct 16, 12:27 AM
    • #6
    • 9th Oct 16, 12:27 AM
    How much are you thinking of giving your dad? You can give away up to £3k each tax year without any inheritance tax implications.
    So, you could give him £3k now, and another £3k on 6th April next year.
    Originally posted by badger09
    I believe that if this allowance was not used in the immediately previous tax year, one year can be carried forward, so £6k this year then £3k a year after that.
    • Motheroftwoboys
    • By Motheroftwoboys 9th Oct 16, 9:31 AM
    • 2 Posts
    • 0 Thanks
    Motheroftwoboys
    • #7
    • 9th Oct 16, 9:31 AM
    • #7
    • 9th Oct 16, 9:31 AM
    Thank you all for your advice.

    I'm not too sure how much my dad has left to pay on his mortgage although I know he had made over payments and has had his mortgage for 10 years. I'm not sure he will accept my offer of paying it off for him, however I just wanted to find out the best thing to do before I suggested it to him.

    He has no pension as he has always worked for a small business (around 6 members of staff) and from what I can gather from him, Is not something he has actively done for himself (whereas bigger companies seem to automatically enroll you). I am aware of the change in law however his boss doesn't need to have their pensions in place until next year, and ultimately, he won't have a full working life to contribute to it. He has always been employed and continues to work full time.

    from what I gather, my dad has savings and enough to pay off the mortgage, however this would leave him with no money at all as this is his savings. I am assuming, maybe wrongly, that if I paid off the mortgage then he could work until retirement age and have his savings as expenditure money on tip of his wages and then his pension as his main outgoing is obviously his mortgage per month.

    would paying into a pension make more sense? could I just put a lump sum into a pension?

    I'm not too savvy with pensions, my uncle got stung with his in regards to him getting his money back, something about having to live until he was 110 or something to be able to get his money back in full? I'm pretty clueless
    • xylophone
    • By xylophone 9th Oct 16, 10:38 AM
    • 19,182 Posts
    • 10,895 Thanks
    xylophone
    • #8
    • 9th Oct 16, 10:38 AM
    • #8
    • 9th Oct 16, 10:38 AM
    Has your father obtained a new state pension statement?

    If he has been contracted in for over forty years, his SP could be well in excess of the full new state pension.

    Knowing his entitlement should help him to plan.

    He reaches SPA in around 2022?

    His employer will have to offer a pension scheme - your father will also contribute and could choose to contribute more than the minimum.

    He could also choose to contribute to a personal pension if he wishes.

    https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

    You seem very concerned about your father's finances but he appears to be coping perfectly well?

    You could simply tell him that you are in a position to help him out should he need it and would be happy to so so?
    • Third Age
    • By Third Age 9th Oct 16, 10:59 AM
    • 14 Posts
    • 0 Thanks
    Third Age
    • #9
    • 9th Oct 16, 10:59 AM
    • #9
    • 9th Oct 16, 10:59 AM
    Don't forget inheritance tax on his estate. I have no idea of the value of your father's house but if your father's estate (which would effectively include the value of the gift that you give him) is likely to be big enough to pay Inheritance Tax you might consider paying his mortgage as an interest free loan repayable on death rather than as a gift. His debt to you would then be taken out of the value of his estate before any IT was calculated..
    Last edited by Third Age; 09-10-2016 at 11:04 AM.
  • jamesd
    You uncle probably made a few mistakes:

    1. He probably bought an annuity to provide a guaranteed income in retirement. You can get about twice as much guaranteed for life inflation-linked income by living on the pension pot money while deferring the state pension instead. The state pension is increased by 5.8% for each year it's deferred, pro-rated for part of a year. So a person with £8000 state pension could spend£ 8000 from their pension pot to live on for a year and their state pension would then pay out £464 a year more. Plus the inflation-linked increase.

    One nice thing about deferring the state pension is that it probably makes taking out money from the pension tax free, since all or almost all of the personal allowance for income tax is going to be available when not working. So he might be able to get 100% out tax free instead of just the 25% tax free lump sum. Which means the tax relief gain on all of it, a better deal on those pension contributions.

    If his health is normal good sort of level then he should defer for at least five years if he can afford it.

    2. He probably didn't shop around. While annuities are bad value for money for those in normal good health around state pension age, the place where the pension pot is is not usually the place that will offer the highest income for the money. This mostly doesn't matter for those who know about state pension deferral.

    3. Those who have any medical condition or lifestyle issues that reduces their life expectancy can qualify for an "enhanced annuity". These pay more than a normal annuity. But they still might not pay as much as state pension deferral. Things like smoking count for this.

    Just send your dad to Hargreaves Lansdown to get a pension set up since he doesn't have a workplace one. They aren't the cheapest for larger pots but they are great for beginners and lower amounts that he'll have. HL will probably pitch annuities to him but as with any bad deal he doesn't have to bite, he can just ignore them and defer his state pension instead.
    • G_M
    • By G_M 9th Oct 16, 12:58 PM
    • 37,062 Posts
    • 40,988 Thanks
    G_M
    1) as others have said, look into his pension situation. Making one-off contribution to the gov pension scheme to make up gaps in his life-time contributions can be very cost-effective.

    Pensions
    Can I top up my State Pension? Which?
    Royal London - Guide to topping up your pension
    DWP State Pension top up calculator


    2) if you give (gift) him the money for his mortgage, yes, then if you die within 7 years that gift will be considered as part of your estate and may be taxed (Inheritance Tax). Also, if/when he dies, it will be his money, so will be part of his estate for Inheritance tax

    3) However if you loan him the money, then Inheritance Tax would not be payable if either of you die. You could draw up a simple agreement that he will repay you the money when he dies - as a loan it would be repaid to you by his Estate before calculating the Estate's Inheritance Tax liability (just like any other debt when he dies).
    Last edited by G_M; 09-10-2016 at 1:04 PM.
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