Borrowing money from elderly grandparents

Newtos

I'm in the process of buying a house and am considering asking my grandparents to lend me £5000 towards the deposit. We would pay them back by monthly standing order over 5 years.

My question is (morbid as it sounds)- if they died before we had finished paying it back would we have to pay inheritance tax on it? Is that the same for anyone who lends you money? I.e. if a family member, even a young one, lends you money and then happens to die within the next 7 years.

Thanks!

Tixy

Mortgage lenders won't allow your deposit to be made up or (or include) a loan that has to be repaid. So I would discuss this with your mortgage broker first.

In terms of inheritance tax - if its a loan then there would not be inheritance tax to pay on the loan as such (not in the same way as if it was a gift - which is when the 7years part becomes relevant).
But if they passed away then any debt still outstanding and therefore owed to their estate would be included in the value of the estate when assessing whether or not the estate was subject to IHT, and if it is then on working out how much IHT would be due.

Bravehearted_2

Shameless.

System

Also any remaining portion of the loan would need to be repaid in full back to the estate.

BugsyBrowne

You have saved up £20k already why not just save the rest then you won't owe your grandparents anything.

tyllwyd

One question is whether your grandparents estate would be above the threshold for inheritance tax?

bouncydog1

Please don't even think about asking your grandparents for a loan. You don't know what their financial circumstances are. Many elderly people appear to be quite well off because they have large homes etc but many are actually struggling to maintain them and reluctant to sell because they want to leave something to their families.

If your grandparents fall into this category then they would have to refuse, which could then make them feel bad that they can't help. Alternatively they may just not want to lend you the money, particularly if they had no help when they started out.

Carry on saving or try and negotiate the property price down - you never know your grandparents might give you a cash sum when you buy a property (if they are able to) based on how well you have done getting yourself onto the property ladder!

Oh, and if they did die you would be liable to repay the estate unless there was something written into the survivor's will writing off the loan on death.

Newtos

Thanks for all the helpful posts, definitely helps the decision a little.

To the person who calls me 'shameless'- why? I'm not trying to rob old people!! Most families are glad to help out with important first-time steps in life like this. The only reason I have posted on here before asking is to find out the tax implications for the beneficiaries of their will, not for myself!

We have the money to buy the house ourselves, however in the long-term if we had a 15% deposit rather than 10% it may eventually allow us to cut the mortgage term down from 35 years.

In terms of their financial position, I know they have plenty of money and are not secretly having problems. Their estate is worth at least £400k (and that's without knowing how much they have in savings and investments, which is a lot but we don't know how much because they don't).

ViolaLass

I don't know the answer to this but if they lend you the money and then need to go into a home, would it be seen as deprivation of assets? (I guess not since you're paying it back) or could the money be demanded instantly to pay for the home costs? (This is the bit I'm less sure of)

Zanandu

If you have spare money over - which you must have if you were going to pay back your grandparents monthly should you borrow money from them- why don't you instead go for the lower deposit and then over pay on your morgage. That way you will still reduce your morgage, okay you may have to pay a little more interest but you will still reduce it significantly.

That money is your grandparents. Just because they have saved and worked hard and they seem to have plenty now, they will need that for THEIR future.

macman

You don't pay IHT on a loan. IHT is levied upon an estate. However upon death (of both grandparents if a loan from joint assets) any outstanding debt will become payable immediately.
If you are asking 'do I have to pay it back if they die?', then the answer is yes, it is the executor's duties to collect any debts due.