Rolled Up Mortgage Question

pvt

About 15 years ago my wife and I lent £40k to my parents. This was secured as a mortgage on their home (which was fully paid for). A proper mortgage deed was drawn up between us using two solicitors, and a first charge registered on the property.


The terms of the mortgage are simply that rolled up interest is added to the loan, at a rate of BoE base +2%. The loan is repayable on death of both parents, essentially to be taken from the proceeds of their house before the remainder would be added to their estate.


Obviously, there has been no need to discuss this further, no repayments are due as it is a rolled up mortgage, and we do nothing formal like providing annual statements etc.


My question is simple (I hope) - As there has been no communication or 'acknowledgement' of the debt for more than six years, is it possible to argue it has become statute barred? Or does the existence of the mortgage deed and charge on the property at the LR effectively protect the loan from this?

kingstreet

AFAIK only unsecured loans are subject to statute barring as they are governed by the Consumer Credit Act

TrickyDicky101

Very interesting arrangement with interesting tax implications. Would you mind explaining why you might want a debt to yourselves 'statute barred'? Is this because you are in the midst of a divorce?

pvt

TrickyDicky101 wrote: »

Very interesting arrangement with interesting tax implications. Would you mind explaining why you might want a debt to yourselves 'statute barred'? Is this because you are in the midst of a divorce?

LOL No - not at all. I'm not looking to have it statute barred, exactly the opposite.


I was just wondering if the fact that there was no formal communication or periodic acknowledgement carried that risk for us, should there ever be a dispute between us and the executor of the estate for example.


The arrangement was made for a very simple reason: Parents wanted to release equity in their house, and enquired with a number of ER schemes. We felt it better we lent them the money to ensure they got a fair deal, and did not end up trapped having to repay it if they ever needed to move (to sheltered accommodation for example).


The tax implications are something we hadn't considered carefully at the time, and we might end up with a big bill if we're not careful. Not 100% sure where we stand on having to pay income tax on the entire interest element when the loan is repaid. Unless you know different?

TrickyDicky101

I am not a tax expert by any means, but the structure you have is akin to a zero coupon bond which I *believe* means you will crystallise a tax charge on eventual repayment (i.e. when your last surviving parent's estate pays out). This will be calculated as:

Final Pay Out less Loan Originally Advanced

and will be taxed at your highest marginal rate (assuming both you and your wife advanced the money the interest will be split between you both).

Hopefully 00ec25 will see this thread as he *is* a tax expert.

This was interesting from my view-point because conceivably I could be in a similar position in future of lending money to my parents. Beats the sh*t out of equity release!

pvt

TrickyDicky101 wrote: »

Beats the sh*t out of equity release!

Agreed.

So on the tax, one thought was to get the old folks to leave the house solely to me, and express a wish that I share it out as I see fit with my sibling. So I deduct the value of the mortgage for myself, and give her half of what's left?

Anyway, thankfully they're soldiering on quite nicely, so I don't think the problem will arise for a while yet....

Would appreciate any other advice on the tax.