Interest free loan

talexuser

Is it true that if I sell my house (at market value) to a relative with an interest free loan, i.e. repayment of the capital only by a contract for X amount per month with an average inflation link as and when agreed by the parties in the future... there is no reason to inform the tax authorities since the repayments do not count as income?

anselld

If the "inflation link" seeks to protect the value of the capital in real terms then it is still effectively interest.
There would also be stamp duty.

00ec25

(agreed sum/term) x adjustment factor

is the same as saying

(agreed sum/term) x interest rate

interest free means: sum/term

talexuser

Apologies, I phrased that badly. What I meant was the house cost agreed today would be the total amount repaid without any interest.

The repayments would be say £500 a month now and perhaps for the next few years, but £500 a month would be easily affordable for the relative in say 10 years time and not have the same buying power for me as today. So the repayments every month could be increased to say £600 a month etc, but the cost of the house agreed today would still be the total amount repaid.

The object is if I am not receiving interest, but only the repayment of a loan, albeit of variable amounts, then I am not liable for income tax on the repayments?

00ec25

talexuser wrote: »

The object is if I am not receiving interest, but only the repayment of a loan, albeit of variable amounts, then I am not liable for income tax on the repayments?

that is fine and would be tax free as you originally understood, but I'm sure you can now see that you will have to be careful how you word the agreement!

talexuser

Thank you, yes. The house transfer would go through a solicitor, and my will would have to be changed to reflect what happens if, as likely, I pass before the full amount is repaid, so the solicitor can draw up the agreement.