Deposit gift from parents?

funkymonkey849

Me and my partner are looking to buy a house for £85k. We are FTBs. My parents have offered to lend us £25k so we can offer a 25% deposit on the house and have some left over to pay fees. We also have £5k in savings which can go towards fees.

There is no formal agreement to pay back the money or payment schedule, the arrangement is that we can pay it back when we can but we probably won't pay any of it back for at least a year. Effectively it is a 'gift' as they are not expecting it back anytime soon.

How would this affect a mortgage application and is there any tax implications or gifting money I ened to be aware of? Shall I ask my parents to transfer the money asap? Do I need to tell them I didn't save all the money myself, or will they find that out anyway? This part is confusing as I don't want anything to stop us from getting a mortgage!

mortgage-adviser-now

This is very confusing.

Is it a gift (in which case there may be inheritance tax implications)?

Or is it a loan?

In which case the Lender's will take a different view.

It sounds like you want it to be a gift or a loan depending on who's asking.

The Lender will ask your parents to confirm in writing that it is a gift and that they have no interest in the property.

funkymonkey849

Its a technically loan because they will want most of it back at some point, although there is no repayment schedule and they don't want it back in a hurry. We will take at least few years without paying them anything.

I don't know whether to declare it as a loan or a gift, because there is no fixed repayments and they are not bothered about when they get it back. They are happy to declare it as a gift if necessary and only reclaim the money when we sell the house. If we have money spare we may pay them back early.

I am not sure what to tell the lender

herbiesjp

funkymonkey849 wrote: »

I am not sure what to tell the lender

Tell the lender what you have posted here

funkymonkey849

If they sign to say that it is a gift, is there any tax implications (except for inheritance tax if they die within 7 years

SouthCoast

Speak to your solicitor about the implications of a relationship breakdown.

paulsin

I'LL tryand give you a break down of the 2 scenarios.

As a gift- no tax implications unles it is invested ie savings-then your parents would have to pay tax on the interest. If they sadly passed away on the next 7 years and you were to receive in excess of (currently) 300000k (including the deposit gift) then it would be taxable then. But this is only if they pass away and as I don't know you sibling situation you may have been taxed on it anyway. You don't have to tell the lender anything. It desbt matter where the deposit comes from as long as you can make the repayments.

As a loan- if it's informal- ie no contract then it is still technically a gift as you have no legal obligation to pay them back. If it is a formal loan and there is a repayment plan in place then declare this to your lender.

Just a side note. You say you can't pay it in the next 12 months- how certain are you that you can pay it after that. Your lifestyle will easily adjust to a set budget so will you def be able to afford to pay them back? I'm not asking it's just something you need to consider

funkymonkey849

Paulsin, thanks for your advice.

We would be able to make payments to them in the next 12 months if we wanted, but my parents have kindly allowed us to take a long break before even thinking of paying them back so so there is no rush. However it may be the case that we decide to start paying them back straight away (for our own peace of mind, not because they want it back straight away). They have made it clear that if for any reason we struggle to pay them back in the future this is not a problem e.g. redundancy. They are very generous to us and are eager to help us out as best they can. This is why I am thinking it best to declare it as a gift rather than a loan because of these circumstances, even though it is likely that it will be repaid in the end.

If we were to say it is a gift then decide to pay it back would this be a problem? I have no intention to decieve the mortgage lender, but scenarios change - e.g. if income increased we would probably pay them back much quicker.

I am aware of inheritance tax, but it is good to know there is no other hidden tax that I wasn't aware of!

Thank you very much for your answer, it has made things clearer in my head. Obviously I am going to discuss this with my broker who I am seeing tomorrow, but I wanted to make sure I knew what I was talking about before I go!