House paid for outright, want to repay parents.

davvyk

Hi,

Firstly let me thank people in advance for any help you can offer.

My girlfriend’s parents purchased a house outright for us both last year with cash, there is no mortgage involved and the house is in my girlfriends name. Obviously this was a huge help and the both of us are very grateful but my girlfriend is keen to pay them back as she feels the money that was used to buy the house should be theirs to enjoy in their retirement.

My question is what is the best way to go about this?. The initial assumption was that we would mortgage the house and pay them the lump sum back, is this possible and if so how does the bank view it and would we require a deposit as I assume the bank would only mortgage for a % of the property cost. Are there any tax implications in mortgaging and giving the cash back to the parents in a lump sum, if its even possible.

A second option is to come to an agreement between us and my girlfriend’s parents to make monthly payments equal to what we believe a mortgage payment would be. This obviously would mean that her parents wouldn’t get the lump sum that the mortgage route would give but we would still be paying some money back per month. Again though, what are the tax implications of this for her parents?

We have an appointment booked at the bank to have a chat in the next week or so but I thought it best to do a little research myself before. Any help or advice you can offer is greatly appreciated as I’ve managed to find little info regarding our situation so far on the internet. If you have any suggestions at all as to how this situation could be best dealt with we would both be exceptionally grateful.
Thanks!
David

SavingPennies_2

I can't really see the point of mortgaging the house to pay them back, surely the point of them buying it outright was to avoid you (your girlfriend) paying interest. How about working out what the repayments would be roughly and set up a direct debit to pay them back monthly?

Not sure about tax implications though.

vacheron

I can't see any reason why giving the money back to your family would not be consiederd a "gift without reservation" and therefore tax free.

In the same way that it was provided to you (or your girlfriend) without conditions attached, it would be being returned in the same spirit.

Your girlfriend may find herrself with an Inheritance Tax bill if anything were to happen to your girlfriends parents within 7 years of you receiving the original money from them. But I don't know if this would be cancelled on the grounds that you effectively gave the money back?, I'm sure others would know, however this is quite hypothetical and hopefully unlikely.

getmore4less

There are alleady potential tax implications.

First was it a gift or a loan or a combination.

If gift(all or part) if one or both die within 7 years there are IHT implications.

If a gift and you mortgage and gift it back then you have the same IHT issues.


If you treat it as a loan then any interest is taxable as income.

An interest free loan has no obvious tax implications(that I know of).

One option might be to look at offsets.
YBS do something called offset plus

with this you get a mortgage and give them back some of the money they lent you(so no gifts and IHT issues) they then deposit the money in an offset account so you have no interest to pay and they can get at the money whenever thye want.

You also have an account and pay into that building up savings etc slowly over time they get all their money back.


The down side of them lending the money is it remains in their estate and this may have IHT implications if they are over the nill rate band this could be why they gifted it now to avoid IHT and potentialy future care costs.

The back ground solution then is you take the gift and at some point in the future you give them money from surplus income(avoiing IHT issues for your estates).


Probaly best to talk to the parents about all the implications, my guess is if thye have this sort of spare cash they are thinking about it.

lr1277

I might be stating the obvious here, but why don't you treat the money as a loan. Then when you pay them back, there are no income tax implications.

Also don't calculate what the mortgage repayment might be, as this will include interest.

If your girlfriend's parents agree that it was a interest-free loan, then repay that.

Agree a payment amount and keep paying that amount till the loan is paid off.

If you start paying back interest, your girlfriend's parents start getting into sticky areas like income tax and needing to be registered with regulators.