Offset mortgage as savings account ?

Fly_Guy

I have an offset mortgage with the Yorkshire Building society currently collared at 3.7% and actively use the linked offset savings accounts for regular and rainy day savings. There is no interest paid, but the savings balance reduces the net mortgage debt on which I pay interest.

My mum has recently inherited some money and is looking for somewhere that will give a reasonable return and income - which is currently difficult.

YBS offer an Offset+ account that could be held by my mum in her name and under her full control that pays no interest. However it can be linked to my mortgage and would offset the interest I would normally be paying to the YBS.

What are the implications if I then pay my mum (by monthly standing order or similar) the interest I would otherwise be paying to the YBS ?

Maybe I'm being a bit simplistic, but whats not to like ? I would much rather pay interest to my mum than the YBS and she gets a much better income from her savings than she would anywhere else. She keeps control of her capital and has essentially instant access.

Would my transfers to her be classed as 'income' she would have to subsequently pay tax on or might it even be possible to class the transfer as a gift ?


Your thoughts... ?

Thanks,

FG

Hominu

So you would be effectively borrowing money from your mother and paying interest on it. She would be receiving an income from you.

So really she should declare the income and pay tax on it.

However, you might be able to use various loop holes such as making a regular gift payment from your taxable income, as long as you can live the same life style without using savings (otherwise it gets complicated).

Or you could try the "Cash is king" route and make regular gift payments.

I believe the limit on gifts would be about 3K per year.

If you get investigated, they might think differently however.

YorkshireBoy

Fly_Guy wrote: »

I have an offset mortgage with the Yorkshire Building society currently collared at 3.7%

If it's the same one I have it's 3.75% (BOE+0.75%). Don't rob your mum.

What are the implications if I then pay my mum (by monthly standing order or similar) the interest I would otherwise be paying to the YBS ?

I'd be happy to do it, but is she a tax payer?

What will you be repaying?...3.75% (the amount you're saving) or 3% (which is the net amount she'd receive as a BR tax payer)? Or maybe you'll be splitting the difference and going for something like 3.4%...which would still be a very good return for her? Or maybe you've agreed a rate equal to the best she can get in a clean account herself? I'm sure she won't want to 'profit' from you, so the best approach may be to simply ensure she doesn't lose out...meaning a 2.4% return might be the best option if she's a tax payer?

One final thing...the BOE rate won't always be 0.5%, so you'll have to factor in increases for her when rates rise.

racing_blue

Fly_Guy wrote: »

Your thoughts... ?

On face value this looks like a win for your Mum and a neutral issue for you. And if all goes according to plan, it will probably turn out that way.

The devil is in the detail, and my concerns would be about how this might affect your relationship with your parent(s) and perhaps your siblings, if you have any?

What happens to her money if you default, etc?

If you can work through these issues and it seems worth the risk, then good luck

YorkshireBoy

racing_blue wrote: »

What happens to her money if you default, etc?

With YBS's Offset Plus feature, the mother retains full control of her money and can withdraw it at any time she likes.

The OP won't even know how much is held in the account as they have no access.

Jonbvn

YorkshireBoy wrote: »

The OP won't even know how much is held in the account as they have no access.

Au contraire mon ami.;) It will be simple enough to determine, based on the amount of interest the OP pays.

jimjames

YorkshireBoy wrote: »

With YBS's Offset Plus feature, the mother retains full control of her money and can withdraw it at any time she likes.

The OP won't even know how much is held in the account as they have no access.

Compared to the situation with being given money this one seems very clear cut.

Your mum may want to split the benefit with you but if it does mean you pay less interest then paying her that amount would seem like a win win outcome.

gizz_mo

If only I could do this with the savings sitting in my small business account....

YorkshireBoy

Jonbvn wrote: »

Au contraire mon ami.;) It will be simple enough to determine, based on the amount of interest the OP pays.

Peut-être pas pour l'OP mon ami

Fly_Guy

racing_blue wrote: »

On face value this looks like a win for your Mum and a neutral issue for you. And if all goes according to plan, it will probably turn out that way.

The devil is in the detail, and my concerns would be about how this might affect your relationship with your parent(s) and perhaps your siblings, if you have any?

What happens to her money if you default, etc?

If you can work through these issues and it seems worth the risk, then good luck

Many thanks to all who replied.

Regarding this.... /\ /\ /\

Yes, win for mum and neutral for me was the plan. I was hoping to set it up this way precisely so that my sister doesnt think I'm profiting from our mum at my sisters expense.

My understanding is that IF I default on the mortgage any money in an Offset+ account remains my mums - in her name and fully under her control.

Also, if Mum does have to declare the income (and I can appreciate that she probably should) as a basic rate tax payer she'll still be getting 3% return on her capital. Which is still probably better than most other options....

FG

Fly_Guy

gizz_mo wrote: »

If only I could do this with the savings sitting in my small business account....

I'm sure I got an E-mail from a nice Nigerian gentleman recently who would be willing to help....

... let me look.......

:D:D:D