Paying a mortgage indirectly - tax implications etc

zygurat789

getmore4less wrote: »

What does it actually say?

How much in total will you be getting back?


If you end up getting more back than you gave them then there is an element of interest Sure I saw some example in the HMRC manual on this sort of arrangement. Might be worth a search.

trying to hide it in some kind of gift/gesture from them is likely to be tax evasion.

Surely this is the crux of the matter.
How long will the relative con tinue to repay his/her loan?
If if finishes when the amount repaid equals the capital then there is no interest and the OP still has a mortgage since he has only repaid the interest.
If the relative continues to pay until the OP's mortgage is repaid (I'm not quite sure how this will be effected) then there is interest received by the OP which is taxable.
However, The original mortgage was taken out for a business purpose, ie to make a loan, and, therefore, the interest paid is an allowable expense.

DrGronod

Thanks again for replies - so it appears nothing is really obvious one way or the other - plenty to think about. It would also appear that what was actually written in the loan agreement w.r.t. interest or not may not hold for much if it looks to all intents and purposes as if interest was assumed to be being paid.

So my gut feeling that I shouldn't let this run too long seems to hold but still not completely convinced. I certainly don't want to be out of pocket at the end of it - i.e. that I should get the interest I'm paying back one way or another. But I also want this to be above board as much as possible.

The "business purpose" of the loan, and the interest paid being an allowable expense is an interesting angle would be the most satisfactory for all parties I would think. But can I just do that?

Cheers.

jimmo

From an Income Tax point of view perhaps the first thing you should ensure is consistency of approach between you and your relative. If your relative is claiming tax relief on what he believes are interest payments and you are not declaring and paying tax on interest received then one of you is guilty of tax evasion.
From HMRC’s point of view it won’t, initially, matter which one of you is the offender - they’ll put you both through the mill until they get to the bottom of it.
Assuming that your current interpretation of the loan agreement is correct i.e. that the payments to you are purely capital and your relative is not claiming tax relief on them, then HMRC would not really have any grounds to challenge the validity of the agreement. However if your relative subsequently “gifts” you an amount over and above the contractual payments they will have the opportunity to challenge the written agreement as a sham.
Claiming tax relief on the interest that you pay to your mortgage lender is, I am afraid, a non-starter.
Lending money to other people is an investment, not a trade.
http://www.hmrc.gov.uk/manuals/bimmanual/BIM62201.htm
Only traders and property letters can claim relief on interest paid.
http://www.hmrc.gov.uk/manuals/saimmanual/SAIM10010.htm

DrGronod

OK - thanks. Will look into this aspect - obviously don't want either of us to be classed as tax evaders!