Loan to granddaughter

dreamon100

Hi, would it be ok to make a loan to my granddaughter of several thousand pounds, to help her up the housing ladder.
My idea is to alter my will to leave her the same amount which would then pay the loan off back to my estate.
I am fortunate to have enough of a pension to not need the cash which is lying in a savings account, when it could, in my mind, be put to better use.
or does anyone have ideas for a different/better way of helping her.

gizmo111

Depends on her situation and how much she is putting towards the house purchase, and what the opinion of other beneficiarys is, including her parents.

At the end of the day it is your money and you can do as wish with it - not disregarding the IR of course.

monkeyspanner

You might wish to consider making an outright gift to your granddaughter as this will then fall outside your estate for IHT purposes after 7 years as a potentially exempt transfer (PET). If you had made no other gifts in the tax year the first £3000 would be exempted for IHT purposes, plus a further exemption of £2500 if your grandaughter is getting married. Then if as a result of the gift there were fairness issues in your will you could reduce her inheritance by the same amount. If IHT is not a potential issue then your idea is perfectly sound as long as there is a loan agreement and your executors will be aware of the loan so it can be taken into account as a debt owed to your estate.

whitewing

The only thing that I would say is whatever you actually do, write the details down so that your granddaughter has a record of what/when she needs to repay, or how else it is being dealt with.

A family member lent me the deposit for my house when I was a single parent. Neither of us likes discussing money, repayment terms weren't agreed, and it feels really awkward. Now we're at a stage where I should really be paying back extra as it was a long time ago, but it's impossible to discuss it with her and I can't really afford to do that. I resent that it gets so embarrassing. She won't let us pay back in instalments either for no real reason. Now I've ended up lending the money to my brother (neither of them know about the other's situation) simply because he needed it short term and it was there.

So sometimes a very kind gesture can make things tricky unless it's clearly spelt out. And remember that gratitude isn't always expressed in the same way that you would express it. I am very grateful that the money was lent to me, but I could hardly say that each month when I didn't know how I was going to be able to pay it back. So now, for this and other reasons, I hardly see the lady who lent it.

lilac_lady

I don't believe in lending money as it can fracture relationships, especially within a family. I give money rather than lend it but I have to be realistic and not go overboard as I find it easier to spend on others rather than myself.

Errata

dreamon you might find this link informative http://www.independent.co.uk/money/mortgages/spotlight-lloyds-tsb-lend-a-hand-mortgage-1689633.html

margaretclare

If you have this money, are sure you don't need it and won't need it in future, then give it to her without strings. Don't bother with creating a debt to be repaid to your estate - why complicate matters.

Keep it simple. Just give it. I'm sure she'll appreciate it!

McKneff

I agree with Margaretclare. Give it to her then possibly deduct that amount from what you would leave her in your will (if you have other grandchildren etc who are beneficiaries) Seems fair and simple to me. By the way, what a nice granny you are :T

dreamon100

Thanks to everyone for your comments.
The idea behind making it a loan instead of a gift is to keep the taxman happy, my query was to find out if it would be legal with the taxman. Her parents know and are in agreement and my other grandchildren are also looked after. So it looks like it's ok to proceed.
ps I'm a grandad.

sloughflint

dreamon100 wrote: »

Thanks to everyone for your comments.
The idea behind making it a loan instead of a gift is to keep the taxman happy, my query was to find out if it would be legal with the taxman.

Nobody else has mentioned this so I may be talking rubbish here but I can't see how this helps with tax ( I guess you mean IHT).

If it's a loan, the value would still be included in your estate when you die ( whenever that is). The fact that you would be altering the will to gift the same value to your granddaughter simply means that she won't have to pay anything.

Surely an outright gift would be better so that it can at least be a PET? What you propose seems less tax efficient to me if your estate is large enough to have IHT implications.

edit:
Could this idea work?

Gift 6k now ( using this and last year's capital allowance) and create a loan of the remaining required amount.

Depending on just how large the amounts involved are,each year, you knock 3k off the outstanding balance of the loan over the next few years.

Have your will written in such a way that any outstanding balance on the loan to grand-daughter is wiped off and considered as a gift.

If you survive seven years consider the whole loan written off.

Would that be more IHT efficient and possible?