Offset Mortgage Question

Gorgeous_George

dimbo61 wrote: »

George- as no one earns any interest ! what TAX is there to pay ?

OP wrote: »

If he had £50K earning 5% net but used it to offset my mortgage at 6% and I paid him the 5% and benefit by 1% for example.

If the OP's father receives 5% from the OP, then he has earned 5% interest and tax is due - perhaps.

Of course, the taxman may not find out but the tax bill would hurt if he finds out after 10/20 years.

Or is tax not payable?

GG

dimbo61

quite right George if the OP pays his dad 5% on the money he lends his son then DAD needs to declare this on his TAX return.

silvercar

Individuals are allowed to make gifts of upto £3,000 in a tax year with no liability for income tax on the beneficiary.

The 1% difference wouldn't be an income for anyone, so won't incur tax.

tinkerbell84

First Direct require that all savings accounts be only in the names of the offset mortgage account holders.

bunking_off

Even without the arrangements like YBS, you can achieve a similar result.

Depends on the level of trust in your household.... In my OneAccount I run a "Bank of BunkingOff", where my in-laws simply gave us a cheque of their savings. I give them the interest I save on my mortgage....they get a better rate than they would otherwise, I have the satisfaction that my interest payments are going to providing for them rather than RBS's shareholders. They're non tax-payers so no tax implications.

getmore4less

silvercar wrote: »

Individuals are allowed to make gifts of upto £3,000 in a tax year with no liability for income tax on the beneficiary.

The 1% difference wouldn't be an income for anyone, so won't incur tax.

I did not think there was ever any income tax liability on gifts possible IHT though.

Gifts can be unlimited if derived from income.

http://www.hmrc.gov.uk/cto/glossary.htm#Exemptgifts

Exempt gifts

Gifts that are exempt from inheritance tax. These include

• gifts to individuals more than seven years before death. See potentially exempt transfers
• gifts to spouses or civil partners
• gifts not exceeding £3,000 in any one tax year. See annual exemption
• gifts on consideration of marriage or civil partnership
• gifts to UK charities
• gifts for national purposes
• small gifts
• gifts which are normal expenditure out of income

The problem here is the obvious connection between the surplus income and the offset money which means it is not gifts but payment for the loan of the money to offset.