Loan to child

lilab_2

Apologies if this is the wrong forum. I wish to lend my daughter the money to purchase a flat. It would be an interest free loan with no set time span for repayment. If she were not able to afford to continue with repayments or she were to want to sell, the capital would revert to me less the repayments she would have made.
Are there any tax implications for either of us over such an arrangement?

Thank you

00ec25

no tax implications for either of you

you would be advised to record the terms of the loan in writing however just in case she dies and you need to claim the money back from her estate (or she gets married and then divorces!)
you also need to decide what would happen to the debt if you die before it is repaid - if she has siblings they may not be too happy if she gets more than them in terms of a written off debt plus an inheritance as well

kidmugsy

You also need to decide whether you want a charge over the property. For security, it might be wise.

jimmo

lilab wrote: »

It would be an interest free loan with no set time span for repayment. If she were not able to afford to continue with repayments or she were to want to sell, the capital would revert to me less the repayments she would have made.
Thank you

I don’t follow that. With an interest free loan with no set time for repayment how is it possible for her to become unable to afford to continue with repayments?
For Inheritance Tax purposes if you give her the money now and live for 7 years that gift will fall out of your estate.
If you loan her the money then the amount she still owes you when you die will form part of your estate, potentially liable to IHT.
If she is your only child and heir a gift now is probably the most tax efficient way forward but if there are other considerations such as you potentially needing the money in the future or safeguarding your other children then tax efficiency may not be your first priority.

CLAPTON

lilab wrote: »

Apologies if this is the wrong forum. I wish to lend my daughter the money to purchase a flat. It would be an interest free loan with no set time span for repayment. If she were not able to afford to continue with repayments or she were to want to sell, the capital would revert to me less the repayments she would have made.
Are there any tax implications for either of us over such an arrangement?

Thank you

what exactly do you mean why the sentence about her being able to repay?
do you mean you would evict her and demand repayment or what exactly?

lilab_2

CLAPTON wrote: »

what exactly do you mean why the sentence about her being able to repay?
do you mean you would evict her and demand repayment or what exactly?

No I don't mean I would evict her. What I meant was that if her income suddenly changed and she could not afford to pay her bills then she may need to sell.

And perhaps I mis-phrased the no set time span part. I meant that I wasn't going to hold her to an on-the-dot monthly payment as she is self-employed and income fluctuates across the year.

My main question was whether offering her an interest free loan would have tax implications for her or me, as I just want to help her out.

getmore4less

lilab wrote: »

Apologies if this is the wrong forum. I wish to lend my daughter the money to purchase a flat. It would be an interest free loan with no set time span for repayment. If she were not able to afford to continue with repayments or she were to want to sell, the capital would revert to me less the repayments she would have made.
Are there any tax implications for either of us over such an arrangement?

Thank you

There are no direct tax issues with an interest free loan.
You loan the money and get it back based on the agreement.

Be careful with the highlighted,

You need to make sure the loan is enforceable especially should she die as you need to be ale to claim the money back from her estate.

A charge on the property is worth considering.

lilab_2

getmore4less wrote: »

There are no direct tax issues with an interest free loan.
You loan the money and get it back based on the agreement.

Be careful with the highlighted,

You need to make sure the loan is enforceable especially should she die as you need to be ale to claim the money back from her estate.

A charge on the property is worth considering.

Thank you getmore4less. I had considered the issue if something were to happen to her and she will make a on exchange of contracts.

xylophone

Your daughter could take out life insurance to cover the value of the loan?

agrinnall

Is this the only loan your daughter would require to purchase the property? If she needs a mortgage then your plan is likely to significantly reduce what she can borrow, and mortgage lenders are also very cagey about other people having a charge on the property that they are lending on.

lilab_2

This is the only loan