Borrowing money from sister advice please

richsafe

Hello, I live in a shared ownership house and wish to purchase the rest of the 60% remaining. As a self-employed person my accounts are not allowing me to get a mortgage. My sister has the money sitting doing nothing in an account (due to selling property) and would like to lend me the money until we sell our deceased parents house, where I will be able to pay her straight back (this won't happen for 2 years due to agreement with current tenants) Current solicitor forms are asking whether this is a gift or a loan. What are the implications of either a gift or a loan in terms of tax that I might not have considered? I will also be paying my sister a small amount of interest each month. Thank you for your advice.

Chris_English

If there’s no mortgage involved then it doesn’t really matter. The solicitor’s questions are probably just a standard set that they use in both types of cases.

There’s no tax liability either way, unless you pay your sister enough interest that she needs to pay tax on it.

If there’s a mortgage involved then it’s different; lying is mortgage fraud.)

richsafe

Thank you Chris, I have a tiny mortgage left (7k) so I guess I have to say it's being lent which it is. 

Chris_English

richsafe said:

Thank you Chris, I have a tiny mortgage left (7k) so I guess I have to say it's being lent which it is. 

Only if you are taking on a new mortgage. If your existing one remains in place then (possibly) you don't need to involve them at all.

What's the actual situation there?

richsafe

I'm not taking on a new mortgage, i have that small mortgage left of my 40% share and my sister is going to lend me the full amount to buy out the rest of the 60%

Chris_English

richsafe said:

I'm not taking on a new mortgage, i have that small mortgage left of my 40% share and my sister is going to lend me the full amount to buy out the rest of the 60%

Then it likely doesn’t matter, and you can do what you want.

kimwp

The reason a mortgage company ask if it is a gift or a loan is because if it is a loan, then it is debt, which the mortgage company will want to account for if they are lending you more money. I'm not sure why the solicitor form is asking, but maybe to make it clearer if one of you dies, which estate the money belongs to?

tealady

I would get your agreement with your sister in writing.
Date it an BOTH of you sign it.
Then if something awful should happen (a death or falling out), there are fewer grounds for argument.
Personally if I had a loan from a sibling (or friend), the last repayment would be accompanied by a gift of some sort. It needn't be expensive, a bottle of wine, biscuits or take them out for lunch.