Deposit from Parents, but NOT a gift

AnotherJoe

Tom99 wrote: »

Out of interest will you pay income tax or CGT when you take the profit?

Most likely neither as it's essentially a forward payment on her inheritance, and my will writes off the debt.

getmore4less

AnotherJoe wrote: »

Most likely neither as it's essentially a forward payment on her inheritance, and my will writes off the debt.

If she sells before you die you will have realised taxable gains at point of sale.

I don't think they can be deferred.

umfrevillen

AnotherJoe wrote: »

I have exactly this kind of set up with my daughter.
She has a loan from me, 50% house cost, doesn't need to be repaid until house is sold, I get 50% of house sale back, we have a legal agreement, there is a second charge on the property to protect the loan. She initially used Santander as the lender then switched to Nationwide. As the house was bought with a mortgage fir 50% LTV the mortgage rate was very good

This is identical to my situation!!! How did you proceed with Nationwide? I've written them a letter explaining the situation, but they're yet to get back to me. Is your name on the deed as well as your daughters? Thank you!!!!

davidmcn

AnotherJoe wrote: »

Most likely neither as it's essentially a forward payment on her inheritance, and my will writes off the debt.

So why do it as a loan in the first place rather than a gift?

umfrevillen

AnotherJoe wrote: »

I have exactly this kind of set up with my daughter.
She has a loan from me, 50% house cost, doesn't need to be repaid until house is sold, I get 50% of house sale back, we have a legal agreement, there is a second charge on the property to protect the loan. She initially used Santander as the lender then switched to Nationwide. As the house was bought with a mortgage fir 50% LTV the mortgage rate was very good

davidmcn wrote: »

So why do it as a loan in the first place rather than a gift?

Because it's not a gift, they will want that money back eventually. Or are you're saying to tell the bank it's a gift and just paying them 50% anyway when the property is sold?

davidmcn

umfrevillen wrote: »

Because it's not a gift, they will want that money back eventually. Or are you're saying to tell the bank it's a gift and just paying them 50% anyway when the property is sold?

I was querying AnotherJoe's thinking rather than yours i.e. if it's essentially an advance payment of inheritance (as such gifts tend to be) without a requirement for repayment, why jump through the additional hoops involved in setting it up as a loan?

No, you shouldn't start lying to the bank about the fact it's a loan.

kingstreet

AnotherJoe wrote: »

I have exactly this kind of set up with my daughter.
She has a loan from me, 50% house cost, doesn't need to be repaid until house is sold, I get 50% of house sale back, we have a legal agreement, there is a second charge on the property to protect the loan. She initially used Santander as the lender then switched to Nationwide. As the house was bought with a mortgage fir 50% LTV the mortgage rate was very good

What he said.

AnotherJoe

getmore4less wrote: »

If she sells before you die you will have realised taxable gains at point of sale.
I don't think they can be deferred.

Maybe. If making money is a downside its one I'm happy to put up with. People seem to forget here that if you pay CGT it means you made money. You dont actually end up with less money.

AnotherJoe

umfrevillen wrote: »

This is identical to my situation!!! How did you proceed with Nationwide? I've written them a letter explaining the situation, but they're yet to get back to me. Is your name on the deed as well as your daughters? Thank you!!!!

NO !! Thats the whole point of doing it as a loan to her. We proceeded with Santander via broker. She then switched mortgages some years later to NW.

AnotherJoe

davidmcn wrote: »

So why do it as a loan in the first place rather than a gift?

Because if she split with her partner he'd get 50% of the house which would also take 50% of my loan. Whilst i see no reason for them to split up, the hard fact is that 50% of marriages break up and I'm sure almost no people think they will be in that 50% when getting married/buying a house together. But 50% of them would be wrong and I am cognisant of the fact I coudl be in that 50%.

To put this in context its well over £100k so its not money I wished to blithly hand over.

And of course I always have the option at any time to convert it to a gift, whereas the other way round, doesn't work. (as has been asked a few times here by parents in my near position who have handed over large sums then been stung by very bad behaviour on the part of one of them who still walks away with a lot of money.