Tax on Loans from Parents

davidlizard

Hi all,

I would be most grateful if someone could advise me (or point me in the direction of a website) what the tax implications of this is.

The short story. Parents have some money going spare. I have a largish mortgage. They have suggested that they lend me £50,000 over a period of 8 years, which I pay back, at an interest rate of 3.5%.

- Do I have to pay tax on the £50k received ?
- Do my parents have to pay tax on my repayments ?
- Anything else I should be aware of. My parents are early 60s so should last longer than 7 years for inheritance tax purposes, if that makes any odds.

(The general plan is I use the £50k to pay off the bulk of my mortgage when I get a new mortgage later this year when my fixed rate ends, and they get a modest return - the money will be staying in the family rather than going to the building society as interest).

All advice gratefully recieved.

Dave

RichyRich

I'm no expert, but I would imagine that you wouldn't have to pay tax on the sum lent, but your parents would have to pay income tax on the interest received.

brantwood150

davidlizard wrote:

- Do I have to pay tax on the £50k received ?

No

davidlizard wrote:

- Do my parents have to pay tax on my repayments ?

On the interest element of payments you make to them, Yes.
On any capital repayments made (i.e. any repayments of the origial £50k), No

davidlizard wrote:

- Anything else I should be aware of. My parents are early 60s so should last longer than 7 years for inheritance tax purposes, if that makes any odds.

Not relevant for inheritance tax purposes unless they decided that you didn't have to pay them the £50k back.

sarahlouise210

I think it would be relevant for inheritance tax purposes if they were to die within the 7 years ...the fact that they have asked for the money back seems irrelevant ..they have still given you the money. Hopefully this will not ever be an issue.

Debt_Free_Chick

sarahlouise210 wrote:

I think it would be relevant for inheritance tax purposes if they were to die within the 7 years ...the fact that they have asked for the money back seems irrelevant ..they have still given you the money. Hopefully this will not ever be an issue.

I think technically that the outstanding debt should be repaid on death to the estate - but only on the second death. On the first death, then I'm assuming that the surviving parent is happy to continue to have the loan repaid on the original terms.

IHT would only be (potentially) payable if the debt were not to be repaid, in which case it would then become a gift.

Best to have some paperwork in place that sets all this out - although I think this might be a case for a solicitor to help with, if one wanted to be sure of avoiding all possible tax problems.

Regards

geo555

Your parents should lend you the £50,000 interest free. You repay the loan and you can give them any amount from your income (convienently a similar amount to the interest you would of payed them), with no tax liabilities to them.