Paying my sons mortgage then what

OlderSaver

Hi,

Yes I must be mad, but I have had a long think about it and it is something I want to do, but I'm confused who to ask for legal and financial advice.

Basically I am a widow with 1 son from my husband that passed away.

My son has recently divorced (after his wife left him) and has a mortgage on his home.

I own my own home and have cash which can pay for his home and leave me with enough money to live on, as I receive a widow's pension from my late husband.

If I was to offer to pay off my sons mortgage, what would be the best way to do this?

My son currently pays his mortgage, but since being single he has no spare money to take holidays or to do much other than work to live (like everyone I know). I would like to help out but without dodging tax.

What way can I pay his mortgage and relieve him of interest payments on the mortgage, and in the same instance earn better income that the paltry amount earned in bank savings accounts and isas? but be above board with the tax man?

Is it best to gift him the money (he owns 22% of a 3 bed property in equity, the remainder is mortgaged.) and ask for a rent payment in return. How should I arrange the ownership of the property? Is it best to set up a trust (he is in his 30's)?

I basically would like to make his life easier and I feel that this is what I want to do. I have discussed with my sister and her spouse, and they have said I should seek legal advice, but we are all unsure of what sort of advice I need.

Thanks

L

scotsbob

My son has a mortgage on his home and I bung him a few hundred every now and again to put towards his mortgage, which in turn reduces the interest.
It's a straightforward cash gift every so often. It's easy, doesn't require trust deeds, lawyers or anything else.

Savvy_Sue

It partly depends what you want to achieve, and whether the financial arrangements from the divorce have been finalised.

scotbob's suggestion is the easy one: it leaves the house mortgaged to your son (is it in his sole name?) and creates no complications. You could even give him an amount up to the value of the mortgage in one payment, but I'd get advice on that (in case you die within 7 years ...)

If you want to pay the mortgage off and then have the house in your own name, with your son paying rent, you definitely do need to pay for advice, especially as he already has some equity in it. There will be potential liabilities for both Inheritance Tax (charged to your estate after you die) and Capital Gains Tax (depending on who owns the house when it's sold, who's been living in it and on what basis) and so on.

You also need to think about some 'what if' situations. You're OK for money now, what if you need expensive residential care? What if your son wants to move and is in a position to repay some of that money, would you want him to?

Would downsizing be a better option? I'm presuming there are no grandchildren involved.

longforgotten

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

Why not give him £250 each month, which would be £3000 a year and that would be ok for exempt gifts.


The HMRC website mentions a regular payment being exempt if it is payable from within your monthly income and does not effect your normal lifestyle so perhaps, according to your circumstances, you could give him even more.

OlderSaver

scotsbob wrote: »

My son has a mortgage on his home and I bung him a few hundred every now and again to put towards his mortgage, which in turn reduces the interest.
It's a straightforward cash gift every so often. It's easy, doesn't require trust deeds, lawyers or anything else.

Yes I do sometimes help in this way, however the banks are still winning twice.
1. by getting more interest payments from him.
2. by not improving the interest I earn from savings.

If he pays me less than the bank, but more than my money makes in interest, we both win, and the banks don't.

Thanks

OlderSaver

Savvy_Sue wrote: »

It partly depends what you want to achieve, and whether the financial arrangements from the divorce have been finalised.

scotbob's suggestion is the easy one: it leaves the house mortgaged to your son (is it in his sole name?) and creates no complications. You could even give him an amount up to the value of the mortgage in one payment, but I'd get advice on that (in case you die within 7 years ...)

If you want to pay the mortgage off and then have the house in your own name, with your son paying rent, you definitely do need to pay for advice, especially as he already has some equity in it. There will be potential liabilities for both Inheritance Tax (charged to your estate after you die) and Capital Gains Tax (depending on who owns the house when it's sold, who's been living in it and on what basis) and so on.

You also need to think about some 'what if' situations. You're OK for money now, what if you need expensive residential care? What if your son wants to move and is in a position to repay some of that money, would you want him to?

Would downsizing be a better option? I'm presuming there are no grandchildren involved.

All of the financial orders are completed with the divorce. Downsizing seems a waste of moving money, as he can rent a room if required (for the UK TAX limit with no issues) and do this for any potential partner, should he meet someone.

There are no grandchildren at all.

TBagpuss

If you want to lend him the money but at a lower rate that he currently pay as his mortgage lender, then you could loan him a lump sum to pay off his exisiting mortgage, and have a private mortgage yourself over the property.

You would need to see a solicitor to get the mortgage drawn up, and would need to decide on things such as what interest rate he would be paying, how / when interest will be calculated, and when the debt is repayable. (are you going to have a fixed term, or will it be payable on demand, for instance, if you needed the money for anything yourself)

If you have a formal mortgage in this way you would register it with the land register giving you similar security to a normal mortgage lender.

It would be sensible for you to review your will at the same time - for instance, if you died when he still owed money to you would you want that to be repaid to your estate, (if so, how quickly) to be written off, or to be treated as part of his inheritance and off-set against his entitlement.

Finally, do bear in mind that if you do this, in a worst-case scenario you could find yourself in a position of having to take repossession proceedings against your own son, if he failed to pay. Hopefully , that won't happen, but you need to be aware of the possibility.

PS - check your figures carefully. And take advice about where you would stand in relation to tax. I assume that you would have to pay axe on any interest element of the repayments he makes to you, so do double check the figures to make sure that you can agree on an interest rate (or method of calculating interest - don't forget this is a fairly long term thing, so you would need to make provision to vary the interest) which gives you an after-tax return which you're happy with - that may mean that you can't offer his a rate which is significantly better than the rate the bank offers.

OlderSaver

I really trust my son, and I could trust him to come to me before taking on anymore debt, so the home is not at the mercy of other debtors, and also I know he can get a mortgage at the moment so with even more equity I can't see me being stuck in the future if he needed to repay me. Although we have discussed care, and he is not worried about paying for the care should he need to when that time comes.

We had a similar situation with his grandmother (Husbands mother). Where the house was purchased from the Council back in the 80s and left for he to live in until she died or chose not to live there, whne my husband died my son took on his share of the property, and after a couple of years his grandmother went into care, where he contributed an equal share with his aunt and uncle to care for his grandmother. I doubt he would not do this for me.

Really the issue is if I pay the mortgage and don't charge him rent will that be legal?

Could he then pay me the maximum tax free gift per year for me to take as interest, and if I make any BIG purchases in the year he ay for them without any issues?

Who do we need to tell about this deal, especially if it is a family agreement that we write down and just sign? I can give a copy to my sister in a sealed envelope should I pass away, so that there can be no disagreement at that point.

This is where we are stuck, because is it a IFA or solicitor, we need, and if solicitor what sort, and how do you choose one who isn't just after your money?

Thanks again

Gers

You can gift any amount of money at any time free of tax. One off payments and/or regular amounts. There is no limit.

The main hurdle is to have it documented as the giving away of such a large amount has the potential to be seen as deprivation of assets if you need nursing home or care home fees in the future. However don't let this put you off if you are in a sound financial position. I received monies from my mother which is regarded as PET (potentially exempt transfer) gift. She has to live at least seven years before no tax is due, however bear in mind that any tax which could be payable if you die within the seven years is paid from your estate and not from the gift.

Laymans info though talking from personal experience.

The easy way would be, as scotsbob said originally, would be to pay the monthly mortgage for your son.

Aren't mums great!

Gers

PS. We had it documented by an IFA but only because my mother withdrew the money from her investments. A signed note would perhaps do to avoid family disputes in the future.

Regular payments I suggest should be done via a bank, again for an auditable trail for HMRC. Again, no tax implication if monies are regular payment and can be proved to be surplus to your normal living expenses.

OlderSaver

I can see how the regular payments are easier. But it doesn't fix the interest paid to the bank. I would prefer to gift him all of the mortgage, and get regular payments in return for myself.

Any advice for wording required for a letter between us setting out aby rules e want to give the contract incase things change.