Lending lump sum to son towards deposit on house

littlerock · 19 September 2016 at 2:39PM

My son and his wife are struggling to raise the last part of the amount he needs to put down as a deposit for a mortgage. He has a good job and can meet the repayments OK, but there is not a lot left over. They have saved quite a large lump sum and just need a bit more to get them over the line.

I can lend them this money and he is adamant he wants it to be a loan. What is the best way to do this to minimise the tax implications?

Ebe_Scrooge · 19 September 2016 at 2:53PM

There won't be any tax implications, but you might have problems with the mortgage company - they don't usually like a deposit to come from a loan.

And I'll just mention the usual caveat - treat it as a gift, not a loan, lending to family so often ends in tears, despite the best intentions of all parties.

All that aside, the easiest way is simply to agree that he'll pay you x amount a month until the "loan" is repayed. Just agree a monthly figure that you're both happy with, and which he can afford. Keep a little spreadsheet if you like, or just write it on a piece of paper, to keep track of it. But if it all goes pear-shaped ( I sincerely hope it doesn't, but what if circumastances change, redundancy, any number of things ? ) then bear in mind you'll have next to no legal leg to stand on in terms of demanding the money back. It's for this reason I recommend treating it as a gift - if the full amount does get repayed then look on that as a bonus.

littlerock · 19 September 2016 at 3:05PM

As far as I am concerned it is a gift, but he is keen to treat it as a loan. He works in an environment where he gets an annual bonus. So he expects if not making all the monthly payments, to repay me out of next year's bonus. Maybe I just give him the money to make up the deposit and we treat it as a "loan" after the mortgage has gone through?

Ebe_Scrooge · 19 September 2016 at 3:17PM

I think you may be over-complicating things - though I completely understand where you're coming from.

Since you're not a licensed, regulated lender, you can't "lend" money in any legal sense - by which I mean, you cannot pursue people for non-payment. Of course, if you wish to give your son an amount of money, for no reason in particular apart from you're feeling generous, then fine. At some point in the future, if he has a windfall and chooses to share it with you then that's also fine.

Don't get me wrong, there's no reason it should cause any problems - especially if you're happy in your own mind to treat it as a gift. But I don't see much benefit in trying to draw up a "formal" repayment plan, other than, as I mentioned, a simple record of what's been repayed so far - just so both you and your son can keep track.

Gaz83 · 19 September 2016 at 3:32PM

Ebe_Scrooge wrote: »

Since you're not a licensed, regulated lender, you can't "lend" money in any legal sense - by which I mean, you cannot pursue people for non-payment.

Well, this just isn't true.

As has been said, if the bank think it is a loan, then it's more than likely they won't accept it as a deposit.

My grandparents gifted me part of my deposit, and had to sign a document to state it was a gift.

Ebe_Scrooge · 19 September 2016 at 3:41PM

Gaz83 wrote: »

Well, this just isn't true.

Sorry, you are of course right - there's always small claims court. But this is a lot of hassle, though may be worth it for a larger amount. Though most people wouldn't feel comfortable taking their own family to court.

I really just meant that you don't automatically have the same legal standing that a "proper" lender has.

enthusiasticsaver · 19 September 2016 at 6:31PM

I gifted money to both my daughters for their house deposits and had to state it was a gift and not a loan and I would not be registering any interest in their houses or asking for repayments. There is no tax implications but as someone else said you need to be aware that legally you will not be able to enforce repayment should they not repay it as intended unless you want to go down the line of registering it as an official loan in which case the mortgage company will not take that as part of your sons deposit anyway and it will affect how much they can borrow.

27cool · 19 September 2016 at 7:38PM

He can treat it as a loan if he wants to. But the BS will insist on it being declared as a gift. At least that is what happened when we wanted to help our son with his mortgage application.