Giving regular cash gift to parents for their mortgage

gonzobomo

My elderly parents have an interest-only mortgage on their home with no investment mechanism to repay the capital at the end of the mortgage - they have assumed that they would sell the property before the end of the mortgage to make the repayment. They have been overpaying on their mortgage and the amount of capital still owing is considerably less than the current market value of the property.

I am worried that my parents will be forced to sell their house to pay off the mortgage and they are not keen to move, so I would like to make some regular gifts of money to them to put towards their mortgage to knock down the outstanding capital so that by the time the mortgage ends (in approx 10 years time) the capital will either have been paid off or be a very small amount so that they would not have to sell the property and move on.

I am a higher rate tax payer and I believe that I can make gifts to them from my post-tax income with no tax implications on my part other than the possible Inheritance Tax issue if my gifts total over £3000 per annum and I die within 7 years of giving the gift. Neither of my parents are on any means-tested benefits and their income is restricted to the Government pension and some very modest private pensions.

Given all of the above:

1. are there any tax implications on my part above and beyond the IHT issue I need to consider?
2. are there any tax implications on the part of my parents receiving this money (e.g. income tax)?
3. does it make any difference if the gift was to my parents or paid directly into their mortgage account?
4. should I consider buying the house off of them myself and allowing them to rent the property from me (I've read a number of threads on this and there appear to be a number of issues with this option)?
5. does any one have any other smart ideas of how I can contribute in such a way that my parents mortgage will either be paid off (in terms of capital) by the time the mortgage term ends, or there could be sufficient funds accumulated to pay off the capital at the end of the mortgage term (e.g. I contribute to some investment mechanism on their behalf to build up sufficient capital)?

Sorry, this is longer than expected and I may be asking too much all in one go - I'm very much a newbie to forums and this forum in particular!!

Many thanks

ValHaller

Are you hoping to get the money back? Because various factors my combine to prevent that.

Kayalana99

Just a thought but could you buy the house off them and let them to contine living thier? Then when the worst happens you have the house without any tax problems.

And thier will be no tax problems as you'd be paying back your own mortage (or if you can afford to pay the captial outright )

StuC75

What happens \ how would you feel should the house need to be sold off later to cover care home \ nursing fees?? and whether ring fencing could be construed as deprivation of assets...

princeofpounds

This strategy could be very inefficient from a future contingencies perspective.

What I mean by that, for example, is that your parents might require expensive care in later life. They may have to sell their house to fund it, including any wealth you have gifted to them.

This could be avoided with a smarter structure. For example, you could set up a trust and part-buy their house. This trust would be dedicated to providing accommodation for them in their lifetmies and then wind up on their deaths. Or you could simply just buy part of their house but make a deed to promise them lifelong occupation.

I don't know what is the best solution, but it's unlikely to be what you describe, even though it's the simplest.

jackyann

I think that you need legal / financial advice on this, or as the other posters have said, you may end up a long way from your intentions.
I suggest that you look at AgeUK's website to begin getting an idea of how best to proceed and how to find an advisor who understands your situation. There may be a local charity or organisation who can help as well, but AgeUK is where I would begin.

claretmatt

I would personally avoid buying the house and / or trust arrangements, the former as most mortgage providers won't allow family to live in the house and the later due to the cost and tax implications that it might bring.

Although there would be no IHT issues with regular gifts assuming they leave you with enough to maintain your own lifestyle, your gift "could" disappear if care is needed in the future.

I think you might have answered you own question in option 5, as I would certainly consider using an investment backed solution to meet the capital requirements. Without facts and figures it's difficult to know if this is the right solution.

If you are going to make lump sum payments then take legal advice about taking a second charge on the property - this is effectively what care homes do.

Anyway good luck and nice to hear someone looking to help their parents in this way

SuzieSue

I don't know if a Family off-set mortgage could be used as they are usually for parents helping children. Any money you contributed would still belong to you but would reduced the interest your parents paid:

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9593634/How-to-help-your-children-get-a-mortgage.html

Annisele

Is there any chance you'd be able to save/invest enough money over the next ten years to be able to pay off their mortgage in full?

If so, you might be able to keep all your money in your own name for now (no gifts), and then loan your parents enough money in ten years to let them pay off the mortgage. You could choose to charge your parents interest (or not), and you could take a first charge over the house if you wanted to protect your investment.

That's not necessarily the most tax efficient way, but from your perspective it's a fairly flexible one.