parents paying off my mortgage

magicman3070

My dad has offered to pay off my £140,000 mortgage.
Very nice i think But is there any tax involved like income tax?

if he pops his clogs in a couple of years will i be faced with a large tax bill to pay. the thing that worries me most is i am self employed and it was hard to get the mortgage in the first place in another few years if i had to remortgae again to pay a tax bill it may well be impossible for me to borrow and i would have to sell to pay.

CLAPTON

Your dad can pay off your mortgage if he wants to without any immwediate tax implications.

However, if he dies within 7 years then the 140k will be grossed up with his estate and if its greater than 300K (todays figure) then the estate will be liable to inheritance tax..... exactly as it would be if he hadn't given you the money.

If you want to provide more details then it might be clearer... like what is his total estate likely to be worth, is your mother alive , are you the only beneficiary of his will
etc.

magicman3070

hi
total estate would be 1m + no mother and 3+ may benifit
but there would be no garrentee if i would benifit or anyone else as he may very well leave anything else to charity.
so am i right in thinking that after the 7 year period has passed there would be no "IT" payable?

CLAPTON

The IHT tax would be payable from his estate and not from you, so even if he did leave everything to a cats home the IHT would have to be paid from the estate before the cats could benefit. So you would not have to contribute to the IHT.

And yes, if he survives 7 years then there is no IHT payable at all related to your 140k.

Martinslovechild

The payment is classed as a PET (Potentially Exempt Transfer). This means that providing he does not die within the next 7 years, the transfer of money to you is deemed to be tax-free for IHT purposes.

It's certainly very generous of him to make this offer to you.

Also - if you're currently married or living with somebody, or your partner moves in with you at some point in the future, consider the potential consequences of a house sale in the case of a divorce if there's 100% equity tied up in the property. It would be worth getting legal advice to ensure that you don't end up having to give £70K of your Dad's money away to a girlfriend who ends up taking you to the cleaners...

getmore4less

magicman3070 wrote: »

the thing that worries me most is i am self employed and it was hard to get the mortgage in the first place in another few years if i had to remortgae again

The tax has been covered, what I would do to keep the mortgage alive is look into offset arrangments where you reduce the costs but still keep a "mortgage" going for future lending needs.

As long as you have a portable loan you can then double up to £280k by using the offset pot.

As a self employed person if the income is variable offset can be usefull cash flow vehicles anyway.