Tax implications of loaning a house deposit

Guest101

AmyTurtle wrote: »

No, we don't, because OH has student loans (but they aren't generally counted as an unsecured debt) and quite large travel expenses for his job - however we would possibly move much nearer his job which would cut out this expense. We've also only recently been able to start saving.

It's not so much we can't afford to save, we can and we will, it's more my grandad thought if he lent us a big chunk we would be able to take out a smaller mortgage with a better rate, while paying him back interest free.

Im not judging finances, but if travel is costing you 25% of his income, then he'd actually be better of emotionally, physically and psychologically finding a lower paid job locally - it's great being on £30k+, which is roughly £1,900 a month take home. (not sure if he's rate 1 or 2 for student loan).
But if you have non-reimbursed travel expenses of even £300 then £24,000 salary gives you the equivalent income. - just something to consider.

HE would have to offically make it a gift.

If you choose to gift him £200 a month back, that's your choice. But he could never ever offically reclaim it through the courts, through his estate, etc etc.

AmyTurtle

I entirely agree, but he loves his job and it's his choice, plus he changes jobs quite often in order to progress in his field and it's quite niche so he goes where the work is.
I don't have figures with me, but I'm pretty sure bills, council tax, running and insuring 2 cars (both required for work) and food bills etc comes in at more than £600 per month for us both too.

Like I said, I'm not saying we couldn't save a deposit, of course we can, this would just be a quicker route to getting on the property ladder and my grandad, bless him, thinks he is helping us. I'm just trying to clarify the situation as having never been gifted money or bought a house it's all new to me. If it turns out to be a terrible idea (which it sounds like it is) we won't do it.

Guest101

Fair enough

Gifted money is simple. It's loaned money where it gets complicated

Really your family have no say on how he spends HIS MONEY. Whether that's giving it to you or round the world cruise.

AmyTurtle

I will speak to OH and Grandad and advise the lay of the land - thanks for everyone's help.

Sorry to keep asking stupid questions, but if IHT was eventually due on money he had gifted to us, would we have to pay the IHT or would it come out of his estate?

No they don't, but he would like things to be as stress free as possible for his wife when his time comes. I told him to leave it all to her

PixelPound

Mortgage companies will see a loan as a commitment, however if granddad doesn't want the paper work for your loan/gift/whatever and is happy with simply giving it to you and trusting you to pay it back, that's great.

The question is how long can you wait before moving? If he gives you the money now and you wait 3 months, then your mortgage company will see it in your accounts for 3 months, no need for gift letters nor affecting affordability. Your solicitor will have anti-money laundering procedures, which will require looking at 3 months statements (though some ask for 6) so assuming the right solicitor is chosen, then they see the money as your savings.

Assuming neither of you are self employed or any other complication where you have to show 2 years worth of statements, then its all plain sailing. You could even start paying granddad back so long as you don't do it as a regular payment like DD/SO e.g. pay him cash each month.

As far as IHT, well you are saving as well, so could you not aim to save up 20% of the gift, in case the worst happens (the tax could well come out of the estate, but you could always volunteer that its taken out of your portion). You may actually want to chat at what happens if he dies before you have repaid it all, do you continue and pay his wife, and what if she dies too?

Remember money causes more family fallouts than anything else. If he does die before you repay then other siblings may not like that he helped you, however if its his wish to help you then they should respect his wish. They can't demand you repay it if its informal, but you could always volunteer to reduce your portion if that helps).

A great deal of respect to your granddad :T