Making money from a Mortgage?

rakesh_2

HI Everyone

I just went to Alliance and Leicester to make enquiries about mortgages but came across an idea to make money on what the bank was offering and i wanted your input in this:

Basically my original inquiry was about mortgages. I was offered a £100,000 interest only mortgage which came to approx £378 per month. As i own my current house outright [i.e no current mortgage @ present] the mortgage advisor stated they can transfer the money into my current account in 5 working days. However, i had a light bulb moment...rather then buying a house i was wondering if i can put the £100,000 in a savings account. The mortgage advisor stated that this is was possible as the security would be against my current property but i had 2 find an saving interest rate @ least 4% net to make any credible profit. I later mentioned that my dad recently retired and wondering if i transfer the £100,000 in2 an savings account so that he would not pay any tax.

So far the highest saving rate that i have come across is with Ruffler Bank which is offering 5.90% for 12 months. Thus, after a year the interest that i would [or my dad] would be £5,900. The mortgage payments equate to £4,536 [£378 *12] . A profit of £1,364 a year.....

I'm wondering what your thoughts are.....

tom188

Youve forgotten about tax... so youd make 4720 at 5.9% if your basic rate or 3540 if your higher rate. Dont forget about arrangement fees as well.
Unless you get an exceptional mortgage deal i doubt this sort of idea is really worth it.

tyllwyd

What about inheritance tax? If you give the money to your dad, and the worst happened, and the money became part of his estate, would that take him over the IHT threshold so you could be faced with paying IHT on the money you borrowed? Or what if you found he had spent the money? (I'm sure your dad wouldn't, but things like that do happen in families.)

tom188

tyllwyd wrote:

What about inheritance tax? If you give the money to your dad, and the worst happened, and the money became part of his estate, would that take him over the IHT threshold so you could be faced with paying IHT on the money you borrowed? Or what if you found he had spent the money? (I'm sure your dad wouldn't, but things like that do happen in families.)

No because that IHT would be calculated after debts had been paid and this would just create a £100k debt with the mortgage provider. The IHT status would not be changed.

tom188

By the way OP, i dont understand why you initially wanted a mortgage.

ReportInvestor

Would your dad really pay no tax on the £100K yielding £5,450 pa gross (or £5,750 in a Derbyshire BS 1 Year Bond)?

What is his current annual state pension?
Does he have any occupational pension?
Does he have any savings of his own?

If I gave £100K to my father-in-law I just know he'd spend it on wine & loose women while he lived to 100 .

What if your dad remarried? (I know you haven't mentioned whether or not he is widowed but you also didn't say give the money to your mum & dad.)

rakesh_2

ReportInvestor wrote:

Would your dad really pay no tax on the £100K yielding £5,450 pa gross (or £5,750 in a Derbyshire BS 1 Year Bond)?

What is his current annual state pension?
Does he have any occupational pension?
Does he have any savings of his own?

If I gave £100K to my father-in-law I just know he'd spend it on wine & loose women while he lived to 100 .

What if your dad remarried? (I know you haven't mentioned whether or not he is widowed but you also didn't say give the money to your mum & dad.)

Thanks for your replies so far...

my dad has no pension at the moment [he is currently 58] and has no plans to get a pension!
he does have savings but they are in ISA accounts - i am led to believe that you do not need 2 declare this on a R85 form when claiming back tax - although please correct me if i am wrong
I did do some research on claiming back the tax - its says on the R85 form that my dad can claim back up to £5035....so does that mean the reminder is taxable??????????

i did ring back the A + L mortgage advisor and he told me to put the £100k in my own savings account but because i work i would have 2 pay tax [which makes sense!]. The best account i have found are the ones paying 5.45%. After tax this works out as £4,360 and therefore I won't be making in any profits. However the advisor went on to say that if i put money from the £100k pot into multiple regular savings accounts e.g with Yorkshire Building Society, HSBC, LLoyds i might be able to make some [or little profit]. But then i wonder if it is all worth it.......

MarkyMarkD

If you lend the money to your father, so that he can earn the interest tax free and then pass it over to you, that's tax fraud.

If you lend the money to your father, so that he can earn the interest tax free and let him keep it, you are down by the amount of the mortgage interest.

I don't see a legitimate way to do this in a way which will be financially effective.

People in other circumstances, though, for example with a non-working (and non-taxpaying wife) might find it effective ... I certainly have a larger mortgage balance than I need and a larger amount of savings in my wife's savings accounts than I would otherwise under a similar scheme to the one you outline. Transfers between husband and wife don't count as tax avoidance (and, in any case, the mortgage is in joint names).

Gorgeous_George

tom188 wrote:

No because that IHT would be calculated after debts had been paid and this would just create a £100k debt with the mortgage provider. The IHT status would not be changed.

Father would not owe the BS anything as he would not have borrowed it. Therefore IHT could be an issue.

My view is that, even done legally, the risks would outweigh the potential gains.



GG

properperson

With £100,000 invested HSBC Bank in Turkey will pay 18.75% gross interest, less 6% savings tax, nets down to 17.6% on a monthly Turkish Lira account....

tom188

Gorgeous_George wrote:

Father would not owe the BS anything as he would not have borrowed it. Therefore IHT could be an issue.

My view is that, even done legally, the risks would outweigh the potential gains.



GG

GG - yes I agree, I misread the situation, thought his father was the one who wanted to remortgage.