Loan to relative and partner to help buy first house / flat and how to approach any agreements.

Sea_Shell

I'm assuming your brother isn't in a position to help his son himself.

It's a bit of a cheek him being the one to approach you.  How close a relationship do you have with your nephew?   Does your nephew know he's asked you...he might be mortified!!

Are you always considered the "family bank"?

Have you helped out financially in the past?

Shakin_Steve

I was going to list the pitfalls but I decided it would be quicker to list the good points:
1) None.
2) None.

wizzards

Sea_Shell said:

I'm assuming your brother isn't in a position to help his son himself.

It's a bit of a cheek him being the one to approach you.  How close a relationship do you have with your nephew?   Does your nephew know he's asked you...he might be mortified!!

Are you always considered the "family bank"?

Have you helped out financially in the past?

No my brother has a wife that's stopped work due to illness but has a full early government pension.  My brother has a not very good endowment type mortgage arrangement on his own house and a loan on a not particularly good extension he paid someone to build on his house.  So he does not have lot of spare cash but has a good job and is financially secure.  My brother does not know my full financial status and I generally do not share it with him but he has a fair idea that I have some wealth probably from talking with my parents.

I like my Nephew a lot and he is hard working and doing very well and at the moment renting with a rent of around £650-700 a month.  I am sure he is aware my brother is asking but I don't like it if he is relying on my brother to ask for something.  If he wants something he is old and mature enough to ask by himself is my view.

Being a property investor myself I am aware the market could take a downturn in the short term.  Certainly nationwide is forecasting house price drops of upto 14%. This again would worry me a bit but I would take a 10-20 year view.

Between my elderly parents and myself I would rather give him a gift to help him than get into a loan arrangement.  I don't really understand the rules for gifting to relatives ?  How much could I give him without any of us being liable for taxes.

But I would not like my elderly parents to give him money they may need for care in the future as they are both 80+ and would maybe not make the right judgement if asked.  I have my own house owned outright as well as numerous successful investments that will look after me into my old age.  But at the moment due to Covid I spend much of my spare time looking after my parents who in live in their own cottage.  They are both able bodied and can still drive and financially sorted.  But I do know if they need any kind of complex care in the future that will soon eat through any savings they have and possibly some of mine as well.

Shakin_Steve

No one knows what the future holds but, as far as property prices are concerned, you're in a better position to judge than most. If you're in a position to gift them a few grand, and you're willing to consider it as just that, a gift, then do it. If you want a return on your money, then things are going to get complicated.

John_

It’s a recipe for family strife. If they fail to pay you back then the relationship is ruined, but it can also build up huge resentment if they do pay you back but feel that they are having to go without things, for years, to pay back a wealthy relative who doesn’t need the money.

If you are able to say no, then I think that you should. Another route is that you say that you will lend it and then just hope that the mortgage company says no.

Or, one more option, gift them something meaningful but less, such as £1,000. Explain that you want to help but that you prefer to gift than to lend.

wizzards

John_ said:

It’s a recipe for family strife. If they fail to pay you back then the relationship is ruined, but it can also build up huge resentment if they do pay you back but feel that they are having to go without things, for years, to pay back a wealthy relative who doesn’t need the money.

If you are able to say no, then I think that you should. Another route is that you say that you will lend it and then just hope that the mortgage company says no.

Or, one more option, gift them something meaningful but less, such as £1,000. Explain that you want to help but that you prefer to gift than to lend.

I already check that no mortgage companies I could find would entertain multiple charges.  A second charge on a property loan would require me to lend quite a lot and for their to be sufficient equity.

I think John's option to give them a gift of a few K to get them started and then leave them to their own devices is the best idea.  I could easily see if my nephew fell out with his girlfriend or employment became tougher in this current climate relationships could be damaged and I could end up being isolated from my family members due to bad feelings or scenarios where persons resent having to pay a loan back to a family member they consider doesn't need the cash.  Having had recently a close call medically myself which is now resolved I need as much support myself at least emotionally from my remaining family.  The last thing I want is money to stand in the way of a happy family life.

Sea_Shell

I agree, in that if you want to gift something, then do so.  Getting into "loans" just makes things complicated and can cause resentment etc.    

As for any tax.  There are no direct taxes on gifts.  However, if you gift over the £3k allowance, and die within 7 years, and your estate is liable for IHT, then YOUR ESTATE may be liable to pay IHT on the gift.      Your personal IHT planning, will and PoA needs would probably be best dealt with on a new thread if you want to discuss those elements.

Am I right in thinking that you don't have any children of your own?

I do know where you are coming from though, as I can see a similar dilemma in my future!!!     Currently our parents are still financially supporting my sibling, who's mid-40's, to the point where they are risking their own financial future.    My worry is that once the bank of Mum and Dad runs dry...their attention will turn to their "well off" sibling.

Sea_Shell

We cross posted there...almost simultaneously!!

Disagreements over "money", (and the perceived obligations around it) are already causing problems in our family, and that's without me really speaking my mind about what's going on!!!!    I have to bite my tongue on a regular basis, or really be seen as "the bad guy".    But I'm just realistic as to the long term validity of their "plans" and the house of cards that it is, and the train wreck that's approaching at high speed.   They either don't see it, or choose no to see it!!!

wizzards

Sea_Shell said:

I agree, in that if you want to gift something, then do so.  Getting into "loans" just makes things complicated and can cause resentment etc.    

As for any tax.  There are no direct taxes on gifts.  However, if you gift over the £3k allowance, and die within 7 years, and your estate is liable for IHT, then YOUR ESTATE may be liable to pay IHT on the gift.      Your personal IHT planning, will and PoA needs would probably be best dealt with on a new thread if you want to discuss those elements.

Am I right in thinking that you don't have any children of your own?

I do know where you are coming from though, as I can see a similar dilemma in my future!!!     Currently our parents are still financially supporting my sibling, who's mid-40's, to the point where they are risking their own financial future.    My worry is that once the bank of Mum and Dad runs dry...their attention will turn to their "well off" sibling.

Sadly no I don't have own children.  Its still a possibility but I will have to get a move on in life and stop working so much and try and enjoy myself more.    I am realising working and earning cash is pretty pointless unless you spend time enjoying it.  I was brought up in a family where money was tight and my parents scrimped and saved to get us a good education and look after us.  Hence some of these habits are entrenched somewhat.  Since parents sold house in London and retired to cottage near me they are now sorted.  Also they have some cash saved to pay for medical care should they need it etc.  

bradders1983

I say it again...if they can get a 85% mortgage without any help, let them crack on.