Loan from family friend for deposit

EKS_2

Hi all,

Any help on this matter really appreciated.

Basically myself and my partner have put an offer on a house that needs a bit of re-decorating. We have a fair bit of money saved up so we are using that to pay for new carpets etc etc. We are currently arranging our mortgage and my partners parents have kindly offered to loan us some money for a deposit, with the idea that we can get a better mortgage deal and will pay back in our own time or when we sell the house.

My question is, how do we go about paying the deposit? Is it best that to let the parents pay straight to the mortgage company or is it better to transfer the money to us and for us do it. Are there any tax implications in any of this?

Thanks,

Jon

pinkshoes

I've just done exactly the same thing a month ago. My parents loaned me and my b/f £10k for a deposit. They transferred it straight to our joint account, and then we paid the deposit (a CHAPS payment to the solicitor's account). They can also pay it directly to the solicitor, as the solicitor will tell you to give the payment a reference name when you make the CHAPS payment.

As far as Tax implications go, so long as her parents live for another 7 years, then that's fine. If they die before the 7 years are up, the £10k might be subject to inheritance tax. My parents gave me the £10k as a "gift" i.e. i can pay it back one day when/if i sell my flat, but they're in no hurry for it.

Bean_Counter

A CHAPS transfer costs £24 a pop, so I would transfer straight to the solicitor to save this if nothing else.

There may be ways around IHT depending on the repayment structure of the loan. For example if it's interest free and repayable on demand then there is no transfer of capital and it is usually possible to regard the interest foregone as being normal expenditure out of income and hence exempt (I think.)

ailuro2

Get some stuff in writing, and get receipts for money paid, and by whom.

Sounds sad, I know, but money lending can cause a host of problems with families. Better to keep it formal,imho.

belfastgirl23

I agree with ailuro2, best get it all in writing. You never know what the future holds and it's easiest for everyone if it's all nice and clear now. You can put it to the ILs that it protects them too and you could roll it in with the other things you do when buying a house (sorting out life insurance and wills etc) so it's all very matter of fact. It doesn't usually cost much extra in terms of solicitors - in fact many will add it in for free it's so little work.

Good luck in your new home.

Bean_Counter

I agree with ailuro and belfastgirl. You don't know what the future holds, especially with the outlaws (things can change, I know.)

EKS_2

Thanks for all the replies - will take the advice on board.