Parents gifting money, second charge and tax implications

Oxid8uk

Thanks everyone for the comments so far.

I understand that to some this may seem very strange and convoluted - why not just gift me the money and that be it. However, my dad has always been very protective of his money and therefore wants to ensure that if he gave it to me I wouldn't go and fritter it away on luxuries (which is the last thing I want to do - my main concern is keeping the house!). So by having a second charge on the property he knows it is safe, if I were to ever sell it he would get his money back, or it be protected if I met someone new etc. If I get to keep the house I plan to stay here for a long time as my children are still young and this is where their lives are. I will have no reason to sell and as sad as it is to say, I will most likely still be here when my parents pass on. 

In addition, they don't want to be seen to be 'gifting' me money and my sister not getting any. They want it to be fair and therefore if they give it as a loan and have a second charge on the property then it is still their money, not mine.

My parents have a lot of assets so I am not overly concerned about deprivation of assets.

Keep_pedalling

Oxid8uk said:

Thanks everyone for the comments so far.

I understand that to some this may seem very strange and convoluted - why not just gift me the money and that be it. However, my dad has always been very protective of his money and therefore wants to ensure that if he gave it to me I wouldn't go and fritter it away on luxuries (which is the last thing I want to do - my main concern is keeping the house!). So by having a second charge on the property he knows it is safe, if I were to ever sell it he would get his money back, or it be protected if I met someone new etc. If I get to keep the house I plan to stay here for a long time as my children are still young and this is where their lives are. I will have no reason to sell and as sad as it is to say, I will most likely still be here when my parents pass on. 

In addition, they don't want to be seen to be 'gifting' me money and my sister not getting any. They want it to be fair and therefore if they give it as a loan and have a second charge on the property then it is still their money, not mine.

My parents have a lot of assets so I am not overly concerned about deprivation of assets.

So this is going to be a loan not a gift, as your father sounds a bit like a control freak. There will only be tax issues if he wants interest on it, or if their assets put them well into IHT territory in which case the better option is to make it a gift.

SDLT_Geek

Slithery said:

You can't protect a gift as it won't belong to your parents anymore.

If it's protected in any way then it's by definition a loan.

If your parents loan you money and put a charge on the property then they won't be liable for SDLT as they won't have a beneficial interest in the property, the same as any other lender. You may be liable for SDLT when you buy out your husband, depending on the financial settlement agreed as part of the divorce - but I'd wait for @SDLT_Geek to give you a definitive answer to that question.

OP has now clarified that the money provided is to be a loan.  So the parents are not joint buyers, having no beneficial interest in the property, but having security for a loan, as @Slithery explains.

It should therefore be that the only parties to the property transaction are the OP and the husband.  If the transfer is done pursuant to a court order, or an agreement in contemplation of divorce, then it might be wholly exempt from SDLT under the rules for divorce.

DwightSchrute

Just been through an almost identical thing with our new house with regards to loan vs gift and charges, and the political sibling thing. Hope this helps OP a bit.

Parental money, they loaned us (husband and I) the money to buy the house. Non-interest bearing loan so no tax to pay on repayments, we make monthly payments to repay the loan which goes back into their pot/inheritance pot. They have a charge over the property but we are the legal owners so can do what we like with the house. In the event that we sell up, we repay the original loan amount, less any money repaid. If we wanted to get a mortgage on the house, we would need them to change the charge so the mortgage company would be first in the queue, but it is still fine for them to have a charge over the property, not just first dibs. I think this is where it would be a limited title guarantee whereas at the moment it is full title guarantee.

• Parents have the charge they want and control so we can't be reckless and fritter money away.
• Siblings can't get cross because it's a loan, not a gift so they aren't going without
• We get ownership of a lovely house and reap the benefits of value going up

If they wish, they can remove the charge and convert the loan to a gift, the 7 year clock would then start ticking.

Thrugelmir

Oxid8uk said:

Thanks everyone for the comments so far.

I understand that to some this may seem very strange and convoluted - why not just gift me the money and that be it. However, my dad has always been very protective of his money and therefore wants to ensure that if he gave it to me I wouldn't go and fritter it away on luxuries (which is the last thing I want to do - my main concern is keeping the house!). So by having a second charge on the property he knows it is safe, if I were to ever sell it he would get his money back, or it be protected if I met someone new etc. If I get to keep the house I plan to stay here for a long time as my children are still young and this is where their lives are. I will have no reason to sell and as sad as it is to say, I will most likely still be here when my parents pass on. 

In addition, they don't want to be seen to be 'gifting' me money and my sister not getting any. They want it to be fair and therefore if they give it as a loan and have a second charge on the property then it is still their money, not mine.

My parents have a lot of assets so I am not overly concerned about deprivation of assets.

So did some one lie to the lender in saying it was gift? 

Brie

Oxid8uk said:

Another question I have is, could them gifting/loaning me this money be seen as a deprivation of assets?

Assuming you are in England....then yes.  Worse case scenario if they needed money to pay for their care and that meant getting the money back from you then you could be forced to sell the house.  The only way around this is if you are over 60 when the situation arises in which case you don't need to sell but the local authority will put a lien on the property to collect their share when it does eventually get sold - either by yourself or your heirs. 

Oxid8uk

Thrugelmir said:

Oxid8uk said:

Thanks everyone for the comments so far.

I understand that to some this may seem very strange and convoluted - why not just gift me the money and that be it. However, my dad has always been very protective of his money and therefore wants to ensure that if he gave it to me I wouldn't go and fritter it away on luxuries (which is the last thing I want to do - my main concern is keeping the house!). So by having a second charge on the property he knows it is safe, if I were to ever sell it he would get his money back, or it be protected if I met someone new etc. If I get to keep the house I plan to stay here for a long time as my children are still young and this is where their lives are. I will have no reason to sell and as sad as it is to say, I will most likely still be here when my parents pass on. 

In addition, they don't want to be seen to be 'gifting' me money and my sister not getting any. They want it to be fair and therefore if they give it as a loan and have a second charge on the property then it is still their money, not mine.

My parents have a lot of assets so I am not overly concerned about deprivation of assets.

So did some one lie to the lender in saying it was gift? 

No-one has lied to anyone.

Slithery

Oxid8uk said:

Thrugelmir said:

Oxid8uk said:

Thanks everyone for the comments so far.

I understand that to some this may seem very strange and convoluted - why not just gift me the money and that be it. However, my dad has always been very protective of his money and therefore wants to ensure that if he gave it to me I wouldn't go and fritter it away on luxuries (which is the last thing I want to do - my main concern is keeping the house!). So by having a second charge on the property he knows it is safe, if I were to ever sell it he would get his money back, or it be protected if I met someone new etc. If I get to keep the house I plan to stay here for a long time as my children are still young and this is where their lives are. I will have no reason to sell and as sad as it is to say, I will most likely still be here when my parents pass on. 

In addition, they don't want to be seen to be 'gifting' me money and my sister not getting any. They want it to be fair and therefore if they give it as a loan and have a second charge on the property then it is still their money, not mine.

My parents have a lot of assets so I am not overly concerned about deprivation of assets.

So did some one lie to the lender in saying it was gift? 

No-one has lied to anyone.

In the first post you said...

Oxid8uk said:

The money will be a gift...My mortgage lender is ok with this.

As we have established it isn't a gift, it's a loan. Lenders see gifts and loans very differently and where a gift won't be a problem a loan may well be.

Oxid8uk

DwightSchrute said:

Just been through an almost identical thing with our new house with regards to loan vs gift and charges, and the political sibling thing. Hope this helps OP a bit.

Parental money, they loaned us (husband and I) the money to buy the house. Non-interest bearing loan so no tax to pay on repayments, we make monthly payments to repay the loan which goes back into their pot/inheritance pot. They have a charge over the property but we are the legal owners so can do what we like with the house. In the event that we sell up, we repay the original loan amount, less any money repaid. If we wanted to get a mortgage on the house, we would need them to change the charge so the mortgage company would be first in the queue, but it is still fine for them to have a charge over the property, not just first dibs. I think this is where it would be a limited title guarantee whereas at the moment it is full title guarantee.

• Parents have the charge they want and control so we can't be reckless and fritter money away.
• Siblings can't get cross because it's a loan, not a gift so they aren't going without
• We get ownership of a lovely house and reap the benefits of value going up

If they wish, they can remove the charge and convert the loan to a gift, the 7 year clock would then start ticking.

Thank you so much for this informative post (rather than some people insinuating we are lying about what this money is - this is what I am trying to clarify at the moment and now see that it is most likely going to be classed as a loan). It is good to know that this can be done. I have spoken with our lenders mortgage advisor who set-up the mortgage initially and she has said that they do allow second charges, and she is also fully aware that the money my parents give would be a gift/loan (whatever you want to call it at the moment) that does not require repayment whilst they continue to be the lender.

Thrugelmir

Oxid8uk said:

Thrugelmir said:

Oxid8uk said:

Thanks everyone for the comments so far.

I understand that to some this may seem very strange and convoluted - why not just gift me the money and that be it. However, my dad has always been very protective of his money and therefore wants to ensure that if he gave it to me I wouldn't go and fritter it away on luxuries (which is the last thing I want to do - my main concern is keeping the house!). So by having a second charge on the property he knows it is safe, if I were to ever sell it he would get his money back, or it be protected if I met someone new etc. If I get to keep the house I plan to stay here for a long time as my children are still young and this is where their lives are. I will have no reason to sell and as sad as it is to say, I will most likely still be here when my parents pass on. 

In addition, they don't want to be seen to be 'gifting' me money and my sister not getting any. They want it to be fair and therefore if they give it as a loan and have a second charge on the property then it is still their money, not mine.

My parents have a lot of assets so I am not overly concerned about deprivation of assets.

So did some one lie to the lender in saying it was gift? 

No-one has lied to anyone.

There's a very clear distinction between a gift and a loan. What was said to the mortgage lender will determine their response. Hence my earlier comment.