Parental Gift/mortgage

amyguildford

Hi,

My Parents have taken a mortgage on their commercial property (owned in a partnership). The mortgage was not needed for the partnership, but instead divided equally between the 2 partners. My parents are going to give me their share to provide me with a deposit on my flat purchase.

Legally I have no obligation to repay them as obviously there is no contract, however I will be transferring an amount to them monthly to cover their share of the mortgage repayments they will be making.

I am wondering what the tax ramifications are for them? Is there an issue with my monthly repayments to them?

Secondly I am wondering what the tax consequences are for me in receiving the large amount and subsequently repaying it.

Thanks in advance

le_loup

They will have to pay tax on the interest that you are paying them.

amyguildford

Thanks le loup. Would it make any difference if I missed out the middle man and paid the cash directly to the business account that pays the mortgage, as they would be doing if they were paying the mortgage?

Obviously I don't want them to have to suffer for helping me out!

nomunnofun

amyguildford wrote: »

Thanks le loup. Would it make any difference if I missed out the middle man and paid the cash directly to the business account that pays the mortgage, as they would be doing if they were paying the mortgage?

Obviously I don't want them to have to suffer for helping me out!

I think that this might create a problem with the accounts if lodged to the business account - it would have be regarded as cash introduced in order not to be taxed. The question for the accountant, and the tax man , would be - from where?

amyguildford

As I am not legally obliged to pay them the mortgage repayments, could the amount I transfer monthly be considered a gift, such that a parent gives a child, only in reverse? It doesn't even have to be monthly, if that is an issue.

It seems strange that parents can give their kids money to buy a house, but they can't loan it!

Side point: I assume if my parents paid money into the business account to cover the mortgage repayments that is not going to be an issue for tax purposes?

zygurat789

le_loup wrote: »

They will have to pay tax on the interest that you are paying them.

Would they also not get tax relief on the interest they are paying?

CLAPTON

presumably the money they are borrowing is a business loan and passing through the business books and they claim tax relief

they can't then use that money for private use.

holly_hobby

You will have to declare the source of your deposit, as monies donated from your parents as a non-conditional gift (which the solicitor will check under money laundering regs), ie that which is made without reservation, requirement of repayment or in exchange for any beneficial interest in the property - to which the lender will require them to sign a disclaimer saying the same. (this is usually dealt with by the solicitor).

So, if the capital is anything other than a true gift (ie parents DO require it repaying by you), you have issues, unless you conceal this fact (ie tell a lie) within your mortgage application, essentially making it a fraudulent submission .... so be careful how you play this if that's the case.


Hope this helps

Holly

le_loup

amyguildford wrote: »

It seems strange that parents can give their kids money to buy a house, but they can't loan it!

Not true. They can loan you money and/or give you money - no tax implications. However, you are paying them interest. That's taxable.

amyguildford

Hollyhobby: I don't want to do anything fraudulent. My parents are signing the disclaimer saying its a gift, but I am choosing to repay them as I don't think it's fair on my siblings otherwise. Hopefully legally that isn't fraud?

Le loup: I see what you mean, thanks

zygurat789

CLAPTON wrote: »

presumably the money they are borrowing is a business loan and passing through the business books and they claim tax relief

they can't then use that money for private use.

But the property is owned by a partnership, so long as the capital account does not go overdrawn they are withdrawing their own money and the loan is being used to finance the business venture and, therefore, the interest IS allowable.