Loan from Parents

chris38_2

My parents(married and living together) are going to loan me £12500 each (25000 total) to pay off the mortgage on my house.

Dpending if it makes any difference to the tax situation i will pay them back over 5 years (and have the bank statements to prove the payments) by either-

a. just the ammount borrowed (ie no interest)
b. the ammount borrowed + interest @ 3%

my question is does this loan have any tax implications as they are not giving me but loaning me the money ?

Thanks

fengirl_2

Your parents will be liable to tax on the interest you pay them. No other implications, except of course if they die before it is paid off, the executors may require you to pay the outstanding amount. It may be a good idea to take out a life insurance policy to cover this eventuality.

CLAPTON

fengirl is of course correct in her answer

however, given the modest level of the interest, I'm sure many families find situations, like birthdays and xmas, opportunities to avoid the inconvenience of official paperwork and form filling.

chris38_2

Thanks for the replys

May i also ask, If they GAVE me the £25000 would be seen as a gift ie P.E.T. and the seven year rule would apply.

but if he lent me the money it would be seen as a gift with reservation (ie i am paying them back) and the seven year rule would not apply and would ALLWAYS be counted in any calculation for I.H.T.(even after 7 years)

thanks

CLAPTON

if your parents both die leaving more than the IHT limit (currently 624,000 for a couple) then their estate will pay IHT on the amount over the limit.

if your parent give you 25k and then both die within 7 years then their estate will pay IHT on any amount over the IHT limit (including the gifts of 25k) (i.e. the same amount as above)

if your parents lend you 25k then it isn't a gift at all; it's a loan ... any unpaid amount at the time of their death whenever it is, will form part of their estate.