Borrowing money from parents oversea for buying a house. Any problem relating to tax?

Cisco001

Hi, all,

My situation is I am going to buy a house, and I have 1/3 of cash on my own. My parents agree to borrow me the other 2/3 such that I don't need to get a mortgage.
My parents are not UK resident, they are living overseas.
I wonder if I create any potential problem in future with the tax man?

Thanks

ceeforcat

If it is an outright gift, there are no implications for you. There may be implications on the tax due on their estate according to the rules of the country of their residence. In the UK, for example, the gift would cease to form part of their estate if they live for seven years after the gift - otherwise it would be included.

If it is a loan, it should be documented as such - i.e. there is written evidence that the money has to be repaid. Even so, this also has no implications for you with regard to tax. If you pay them interest, this should be declared on their tax returns in whatever country is applicable.

Cisco001

Thanks.

It would be a loan, but I haven't discuss interest with them in details yet.

But even it is a gift, they are living in HK, where there is no gift tax or inheritance tax. I am not worry about that.

Cook_County

There is doubtless an obligation to withhold UK tax on interest you pay them.

grey_gym_sock

Cook_County wrote: »

There is doubtless an obligation to withhold UK tax on interest you pay them.

is there? given that it will be interest, not rent on a UK property?

xylophone

http://www.hmrc.gov.uk/international/tax-incomegains.htm

http://www.globalpropertyguide.com/Europe/United-Kingdom/Taxes-and-Costs

grey_gym_sock

well, there are really 2 questions: is this interest liable to UK tax? and does tax need to be withheld?

it's liable to UK tax if it arises in the UK, isn't it? but can't that be avoided by setting up the loan in HK? (or does that only work if it's an unsecured loan, not if it's secured on a UK property?)

presumably, if the interest doesn't arise in the UK, UK tax definitely doesn't have to be withheld. if it does arise in the UK, does tax ever need to be withheld on a private loan (when you are not a "deposit taker")?

(i don't know how much this matters. i'm guessing that interest is taxed in HK, though perhaps at the lower rate than in UK.)

Cook_County

Vote differently if you do not like current UK tax law; don't blamee the messenger:

http://www.hmrc.gov.uk/manuals/pimmanual/pim2110.htm

grey_gym_sock

Cook_County wrote: »

Vote differently if you do not like current UK tax law; don't blamee the messenger:

http://www.hmrc.gov.uk/manuals/pimmanual/pim2110.htm

thanks, i didn't know that.

however, that seems to be about UK businesses paying interest to somebody outside the UK. so it would apply to BTL, but what if the property is for OP to live in? (i don't think OP specified which it is.)

jimmo

If in doubt, look at the legislation.

http://www.legislation.gov.uk/ukpga/2007/3/section/874

grey_gym_sock

thanks.

so it doesn't matter whether it's a business loan.

and it comes down to whether the interest arises in the UK. if the loan were set up in HK, wouldn't the interest arise in HK?