Tax implications of loan from parents

FeathersForever

I'm currently saving for a mortgage, and this weekend my parents piped up with the (extremely surprising) news that they might be able to loan me the deposit (!!!)

However we were wondering: would we be taxed on this? It IS a loan not a gift, however it's a loan I can repay very slowly interest-free, so it may look an awful lot like a gift from the point of view of the tax man.

It's £10k.

Does anyone know if I'm likely to have to pay tax on this? Most information seems to surround gifts and inheritance tax, which doesn't apply here.

Also, please don't hate me for the good luck . . . believe me I am aware of how lucky I am to have parents who are able and willing to help (and frankly am surprised, I didn't realise they were in a position to do that!)

Thanks in advance for any info.

imoneyop

I'd be more worried about what your prospective lender will say when they find out where the deposit has come from.

CLAPTON

FeathersForever wrote: »

I'm currently saving for a mortgage, and this weekend my parents piped up with the (extremely surprising) news that they might be able to loan me the deposit (!!!)

However we were wondering: would we be taxed on this? It IS a loan not a gift, however it's a loan I can repay very slowly interest-free, so it may look an awful lot like a gift from the point of view of the tax man.

It's £10k.

Does anyone know if I'm likely to have to pay tax on this? Most information seems to surround gifts and inheritance tax, which doesn't apply here.

Also, please don't hate me for the good luck . . . believe me I am aware of how lucky I am to have parents who are able and willing to help (and frankly am surprised, I didn't realise they were in a position to do that!)

Thanks in advance for any info.

no there is no tax on either party.


however, your mortgage lender may not like the fact it is a loan, rather than a gift

[Deleted User]

There are no tax implications for a loan from a family member that has no interest applied to the repayments. However...

A mortgage deposit can't[1] be a loan. A mortgage lender will require that your parents sign a document to confirm that the deposit is a gift that requires no repayment.

[1] Almost all lenders don't allow it, you would be very lucky to find out that did

FeathersForever

And I guess if they make it a gift (but I'm repaying it really . . . ) that's kinda dodgey with the mortgage people and would also get taxed?

[Deleted User]

It would be more than kinda dodgy. It would be kinda fraud. Don't even consider it.

[Deleted User]

FeathersForever wrote: »

And I guess if they make it a gift (but I'm repaying it really . . . ) that's kinda dodgey with the mortgage people and would also get taxed?

There is no tax liability with gifts, you don't need to concern yourself with the question of tax, it has absolutely no relevance to your situation.

If your parents lend £10,000 to you and then declare that it is a gift to the mortgage company, two things will happen:

1. You could refuse to repay the money and when they decide to take you to court you could present the gift declaration as proof that you don't owe them anything, this would be very bad for your parents

2. You would be committing mortgage fraud and if your lender were to find out they could cancel your mortgage, forcing the property to be sold -- if you couldn't find a mortgage elsewhere, and good luck finding a mortgage when you've had a mortgage recalled!

This is a terrible idea that you should not consider under any circumstance, the negatives far outweigh the positives.

Al1x

Would OPs parents be able to lend the 10k for them to put in a savings account? And then in a few months that money is used for a deposit? Is that still fraud?

imoneyop

Al1x wrote: »

Would OPs parents be able to lend the 10k for them to put in a savings account? And then in a few months that money is used for a deposit? Is that still fraud?

When the solicitor asks for the source of the funds and sees 10k appearing in the savings account, they will be asking where it came from.

Last time I got a mortgate, my solicitor wanted to know where the money in my saving account had come from and I had to show him to regular build up of balance and proof of where a large transfer 6 months prior had come from.

FeathersForever

Thanks for the replies guys.

If my parents make it clear it's a loan, presumably they could write a letter to the bank saying what the repayments will be - if they're low enough, would banks still be likely to lend?

Otherwise, it looks like the only way I can accept their help is if they actually give me the money - which can't happen.

Back to the slow saving it seems

imoneyop

FeathersForever wrote: »

If my parents make it clear it's a loan, presumably they could write a letter to the bank saying what the repayments will be - if they're low enough, would banks still be likely to lend?

Refer to post 4. You will be extremly luck to find a lender that will allow a loaned deposit. A broker will be your best bet of finding one, but even then, you won't be looking at the headline rates as you'll be seen as more of a risk.

Also, looking at the worst case scenarion, what happens if in 6 months time you are out of work and the house is repossesed, will your parents be able to afford the fact that you have no way of repaying them?