Gift tax??

kitkatt1982

Hi,
This is one of two separate questions I have and grateful for any info / advice please?
So... out of the blue a house has come on the market in an area my husband and I have always wanted to live in. It’s with a liquidation company (not repossession), details of which aren’t relevant, but they’re selling it off quickly and want a quick sale.

On a whim, as we were happy where we were, we went and viewed it and fell in love with it, it’s a fantastic opportunity both in terms of lifestyle and investment. However, they wouldn’t have hung around for us to sell our home and so my mum very kindly offered to lend us the extra we needed between the purchase price and what we have available with the agreement that we’d pay her back when our house has later sold.

We agreed on full asking price, have had the survey satisfactorily completed and are now going through conveyancing. We’re financing 47% (mentioned in next question), and my mum’s loan is 53%. We have a mortgage on our current property of approx 50% of the value, and will clear my mum’s loan with the equity in our home once it is sold as the valuation of our current home is more than the new one. However we are considering taking out a small mortgage (roughly £20k to do some renovations etc.

As part of the conveyancing, the solicitors are asking about how we will finance the property and I’m wondering whether there are any legal or tax implications in this situation I.e whether we have to pay tax on my mum’s loan, or whether she’d have any claim over the property. She’s happy to pursue on a verbal agreement to repay her but I don’t know whether the Solicitors will insist on something in place and how this works. Obviously they’re shut until Tuesday so hoping someone can shed some light in the mean time please?

Many thanks :-)

EDIT DUE TO REPLIES: We would have paid my mum in full and own the house outright before even thinking about the additional mortgage.

P.s I’m aware of extra stamp duty due to being classed initially as a second home etc

getmore4less

You may struggle to get a mortgage if you are using a loan for the deposit.

00ec25

kitkatt1982 wrote: »

Hi,
This is one of two separate questions I have and grateful for any info / advice please?
So... out of the blue a house has come on the market in an area my husband and I have always wanted to live in. It’s with a liquidation company (not repossession), details of which aren’t relevant, but they’re selling it off quickly and want a quick sale.

On a whim, as we were happy where we were, we went and viewed it and fell in love with it, it’s a fantastic opportunity both in terms of lifestyle and investment. However, they wouldn’t have hung around for us to sell our home and so my mum very kindly offered to lend us the extra we needed between the purchase price and what we have available with the agreement that we’d pay her back when our house has later sold.

We agreed on full asking price, have had the survey satisfactorily completed and are now going through conveyancing. We’re financing 47% (mentioned in next question), and my mum’s loan is 53%. We have a mortgage on our current property of approx 50% of the value, and will clear my mum’s loan with the equity in our home once it is sold as the valuation of our current home is more than the new one. However we are considering taking out a small mortgage (roughly £20k to do some renovations etc.

As part of the conveyancing, the solicitors are asking about how we will finance the property and I’m wondering whether there are any legal or tax implications in this situation I.e whether we have to pay tax on my mum’s loan, or whether she’d have any claim over the property. She’s happy to pursue on a verbal agreement to repay her but I don’t know whether the Solicitors will insist on something in place and how this works. Obviously they’re shut until Tuesday so hoping someone can shed some light in the mean time please?

Many thanks :-)

P.s I’m aware of extra stamp duty due to being classed initially as a second home etc

it is not a gift, it is a REPAYABLE LOAN

a loan will impact how much you can borrow on the mortgage - you state that is 47% so have you asked the lender what their stance is given you will be borrowing 100% of the purchase price?

and yes, it is 100%, because the lender has no ability to force you to repay your mother's loan if you choose not to. It is a massive risk for them lending you 47% and they may well refuse / withdraw their offer if you already have one.

your solicitor is duty bound to act in the interest of your lender so no a "verbal" agreement will not be accepted. Mother will be asked to sign documentation stating it is a loan, not a non repayable gift. She could of course lie, that is a matter for you and her.

no there is no tax for you on a loan

mother may have a tax bill if you pay her back more than she loaned you - that would be treated as interest earned by her and therefore she would be taxed on such extra "income"

kitkatt1982

Thanks to both of you. Sorry, I don’t think I made my initial post very clear. We would have paid my mum back in full before attempting to take out a mortgage on the new property and will own the property outright. I don’t really know why I mentioned the mortgage other than if there were any further implications from my mum having initially lent us the money if that makes sense.

kitkatt1982

P.s our Solicitor is acting on our behalf for conveyancing, it’s absolutely nothing to do with a mortgage company

kitkatt1982

getmore4less wrote: »

You may struggle to get a mortgage if you are using a loan for the deposit.

We wouldn’t be using the loan as a deposit. I’m sorry I didn’t make my first post very clear, we would have paid my mum back in full and own the house outright before applying for a mortgage.

davidmcn

If you're buying with your cash and a loan from your mum, it's entirely between you and your mum what terms apply to the loan. But solicitor needs to know where the money is coming from for anti-money-laundering regulations, so expect to have to produce bank statements and ID for everyone.

For the (future) mortgage, bear in mind lenders usually expect you to have owned for at least six months before you can remortgage.

Mojisola

Don't go with a verbal agreement - put what you plan to do on paper so that everyone is clear about amounts and timescales.

kitkatt1982

davidmcn wrote: »

If you're buying with your cash and a loan from your mum, it's entirely between you and your mum what terms apply to the loan. But solicitor needs to know where the money is coming from for anti-money-laundering regulations, so expect to have to produce bank statements and ID for everyone.

For the (future) mortgage, bear in mind lenders usually expect you to have owned for at least six months before you can remortgage.

Thankyou for this, that’s really helpful. Fortunately we’ve got a very good mortgage advisor who’s already provided details of all the companies who will and won’t consider a mortgage before and after six months. To be honest, we’ll probably wait six months anyway :-)

kitkatt1982

Mojisola wrote: »

Don't go with a verbal agreement - put what you plan to do on paper so that everyone is clear about amounts and timescales.

Thankyou, We would have anyway, for my mum’s security as I appreciate that it’s a huge thing for her to offer to do for us. Just wasn’t sure if it required solicitors involvement :-)

Tom99

I was in a similar position last year although I was the lender. The way we were going to proceed was for the solicitor to prepare a simple mortgage document and for my loan to be registered as a charge just like any other arms length mortgage would be.