Tax implications of paying off a relatives mortgage

ognum

As my savings are making very little interest I am considering paying off the mortgage of a relative what would be the tax implications of this?

bryanb

None really, I hope the relative is grateful though.

McKneff

Do you mean you are going to be a part owner.
If not, the person who's mortgage you pay off will wholly own the house and could just as easily walk away.
See a solicitor before you do anything.

evenasus

I too thought that some of our savings would be best spent.

We paid off the mortgages of my two sons last year.
No tax implications at the moment but...they just have to hope we survive another 6 years to avoid inheritance tax.

ognum

evenasus wrote: »

I too thought that some of our savings would be best spent.

We paid off the mortgages of my two sons last year.
No tax implications at the moment but...they just have to hope we survive another 6 years to avoid inheritance tax.

Thanks thats what I thought, I guess there would have been a tax implication if you hadnt paid them off as well, at least its reduced by 1/7th at the moment.

evenasus

From the HMRC

An example.

In May 1997 Richard, a widower, made a cash gift of £153,000 to his son. The chargeable value of the gift was £150,000, after deducting the £3,000 annual exemption. In June 2002, when the taxable threshold is £250,000, Richard died leaving an estate worth £500,000. As less than seven years has passed since Richard made the gift, the chargeable value of the gift is added to Richard's estate.

The inheritance tax payable on £400,000 at 40% is £160,000. The tax is payable by Richard's legal personal representatives, normally out of estate funds.
No tax is payable on the gift itself, because it does not exceed the taxable threshold. However, the existence of the gift means that consequently more of the estate at death is taxed at the 40% rate because the gift uses up some of the available threshold that is tax free.
If the gift had been made in 1993, then it would have been made more than seven years before Richard's death. It would therefore be an exempt transfer and we would ignore it for inheritance tax purposes. Inheritance tax would only have been payable on Richard's estate at death. The tax payable would have been £ 100,000 (£500,000 less £250,000 at 40%).

MumOf2

If someone were to pay off someone else's mortgage gradually, i.e. pay something each month, it is deemed to be out of income, then there is no tax to pay even if the payer doesn't live for another 7 years. If it's out of capital then the 7-year rule applies, although there is tapering available.

I'm very fortunate to receive help with my mortgage in the form of a monthly direct payment from the helper's account to the mortgagor. HMRC advice is that this won't be counted in any eventual inheritance tax calculation, so it's a very useful and welcome method of providing a benefit now and reducing IHT in the future. There are no other tax implications associated with this.

MumOf2

sloughflint

MumOf2 wrote: »

If it's out of capital then the 7-year rule applies, although there is tapering available.

Only if the value is above the inheritance tax threshold.