Returning gift.

LokiOfNZ

I asked this in a different post but it was mixed in with other questions so perhaps better to split it out.

We're buying a house with, among other funds, a gift of 850k from the wife's parents.
The will live with us.
We've come realise this will expose us/them to gift with reservation of benefit or pre-owned assets tax.
As such, after the wife and Is current property sells (which we no longer need since we'll all be living in this new house together), can we just "return" say 550k of the gift and thus reduce the exposure to the above issues?
(should say the 850k is termed as a gift to satisfy the bank providing additional mortgage funds.)

p00hsticks

Not an expert but could your parents not use their £850k to buy a proportion of the property (so you all four jointly own it as tenants in common), and then at a later date you buy them out of their share using the funds from the sale of your current property ?

LokiOfNZ

p00hsticks wrote: »

Not an expert but could your parents not use their £850k to buy a proportion of the property (so you all four jointly own it as tenants in common), and then at a later date you buy them out of their share using the funds from the sale of your current property ?

Bank said anyone on the deed would need to be on the mortgage, which parents didn't want to do so trying to keep mortgage just to wife and I.
Also would buying their portion not give rise to a stamp duty charge?

unholyangel

LokiOfNZ wrote: »

I asked this in a different post but it was mixed in with other questions so perhaps better to split it out.

We're buying a house with, among other funds, a gift of 850k from the wife's parents.
The will live with us.
We've come realise this will expose us/them to gift with reservation of benefit or pre-owned assets tax.
As such, after the wife and Is current property sells (which we no longer need since we'll all be living in this new house together), can we just "return" say 550k of the gift and thus reduce the exposure to the above issues?
(should say the 850k is termed as a gift to satisfy the bank providing additional mortgage funds.)

Are you aware that this involves usually involves a declaration stating the gift is being given free & clear, with no strings attached/they are not gaining any interest in the property whatsoever?

Just seeking clarification as I read the part in bold as being said flippantly - that theres the possibility this isn't really a gift and that is just being said to gain the mortgage.

Its a complex area and given the sums involved, I would hope you'll be paying for proper advice? Please do. No one likes paying out money but that advice could be worth a whole lot more.

Linton

unholyangel wrote: »

Are you aware that this involves usually involves a declaration stating the gift is being given free & clear, with no strings attached/they are not gaining any interest in the property whatsoever?

Just seeking clarification as I read the part in bold as being said flippantly - that theres the possibility this isn't really a gift and that is just being said to gain the mortgage.

Its a complex area and given the sums involved, I would hope you'll be paying for proper advice? Please do. No one likes paying out money but that advice could be worth a whole lot more.

Yes, exactly - but lets be clearer: it sounds like mortgage fraud.


Also you are in an arguable situation with tax. A gift is a gift and once given becomes the recipient's property. If the recipient returns the gift that sounds like it could be seen as a different gift from you to the in-laws. I dont know how HMRC will regard this but suggest you keep things simple as you dont want to have to argue the case with them, or pay an expensive lawyer to do so.


Actually I dont see how returning the money helps IHT. If the money isnt returned it would be seen as a gift with reservation assuming the parents dont pay a market rent for the accommodation you are providing and so regarded as part of their assets. If the money is returned it also will be regarded as part of their assets.

Another way of handling the situation is simply for you and the inlaws to sell your houses and jointly buy a larger one. In this case there are no gift issues.

MichaelCologne

I think you would be in Tax trouble

Thrugelmir

LokiOfNZ wrote: »

Bank said anyone on the deed would need to be on the mortgage, which parents didn't want to do so trying to keep mortgage just to wife and I.

The fact that they will have a financial interest in the property as occupiers. Will scupper any notion that they are providing a monetary gift.

LokiOfNZ

Linton wrote: »

Yes, exactly - but lets be clearer: it sounds like mortgage fraud.

Hi yes I see your point here, we're actually going to go back to the bank and try to come to an arrangement where they're aware either we'll be returning the gift, part of the gift is actually a loan or perhaps we just purchase the place with full gift and loan from inlaws without porting the mortgage from our current house at the time of purchase and instead port it when current house sells, paying out parents loan with that and equity released. Bank previously did say that's not way it works but will re-ask given other option is to find a new mortgage provider, we'd get hit with early repayment fees but they'd lose a lot more in interest.

Linton wrote: »

Also you are in an arguable situation with tax. A gift is a gift and once given becomes the recipient's property. If the recipient returns the gift that sounds like it could be seen as a different gift from you to the in-laws. I dont know how HMRC will regard this but suggest you keep things simple as you dont want to have to argue the case with them, or pay an expensive lawyer to do so.


Actually I dont see how returning the money helps IHT. If the money isnt returned it would be seen as a gift with reservation assuming the parents dont pay a market rent for the accommodation you are providing and so regarded as part of their assets. If the money is returned it also will be regarded as part of their assets.

Well that is why we're trying to reduce the size of the gift from 850k to 300k to avoid confusion like that. And the main inheritance related issue we're trying to avoid is POAT where the inlaws may be liable to pay annual tax on the portion of the property purchased with their gift but not really a gift monies.

Linton wrote: »

Another way of handling the situation is simply for you and the inlaws to sell your houses and jointly buy a larger one. In this case there are no gift issues.

Its a case of now or never I'm afraid. New baby incoming and schooling for the oldest to arrange at new address. We either completed before Christmas on the new house in question or we flag the entire idea.