loan from parents- do we pay tax?

coopj81

Hi,

I am looking to buy my first property and my parents have very kindly offered to lend me the money instead of using a bank. I will pay them back the value of the loan (no interest) at a fixed amount each month over a 25 year period. Can they lend me this amount without declaring it to HMRC? Or would this amount of money have any tax implications for either them or me other than the potential inheritance tax problems?

thanks

cheap-information

They can "gift" it to you (any amount) and as long as they don't die within 7 years then you are ok without any tax implications.

You can then "gift" them up to £3,000 per year to pay back so as long as it is below this it is ok.

Annisele

If there's genuinely no interest, then I don't think there are any tax implications at all.

Your parents aren't receiving an income, they're just getting their capital back over a long period.

coopj81

cheap-information wrote: »

They can "gift" it to you (any amount) and as long as they don't die within 7 years then you are ok without any tax implications.

You can then "gift" them up to £3,000 per year to pay back so as long as it is below this it is ok.

thanks for the help. I will be paying back £600 per month so £7200 each year. What effect will this have?

cheap-information

I believe that they would need to pay income tax on the interest received on top of the capital but I am not sure. But in your case where there is no interest being paid back I doubt there would be any. I was in the same situation but am not paying any capital back, just the interest and was told by the accountant to just pay under £3000 back/year

anselld

Annisele is correct, no effect so long as there is no interest. Gifting is a red herring, this is simply an interest free loan.

coopj81

ok, thanks for all your help

CLAPTON

there are no tax considerations about an interest free loan.


however if you are using this as a deposit on a property you may have problems with your lender

the lender will want to know the origin of your deposit and may not allow a loan

Yorkie1

CLAPTON wrote: »

there are no tax considerations about an interest free loan.


however if you are using this as a deposit on a property you may have problems with your lender

the lender will want to know the origin of your deposit and may not allow a loan

Valid point but I think OP said in the first post that this loan is instead of using a lender.

SuperHan

Yorkie1 wrote: »

Valid point but I think OP said in the first post that this loan is instead of using a lender.

I also don't think that the lender really needs to know... I mean, my parents gave me a deposit as a loan, and I pay them back, but if it came to the point I couldn't afford it, they would happily give me a payment break until I could, as I'm sure most parents would... So it that sense, I can't imagine the lender would care that it's a 'loan'... It's more like parents have spent your life saving up on your behalf.

But anyway, it appears the point is moot

sammyjammy

SuperHan wrote: »

I also don't think that the lender really needs to know... I mean, my parents gave me a deposit as a loan, and I pay them back, but if it came to the point I couldn't afford it, they would happily give me a payment break until I could, as I'm sure most parents would... So it that sense, I can't imagine the lender would care that it's a 'loan'... It's more like parents have spent your life saving up on your behalf.

But anyway, it appears the point is moot

They most certainly would want to know and if you don't declare it its fraud.