Loan to son for house purchase

Brie

My mom did similar for my brother and it has caused some issues particularly when I needed a similar "loan" and she wasn't willing to provide it.

What she has done is logged the amount of the "loan" in her will and stated that the estate is divided up evenly but he doesn't get that amount.  What can be perceived as unfair is that he has had the amount for a number of years and there's no interest being tallied up so essentially I'm financially disadvantaged (or he has gained an advantage however you want to state it).

IHT won't come into it for you if you gift him the amount and then live for at least 7 years (as I understand it).  All it would take for you to help him is to provide a signed letter to advise the bank that it's a gift and that you have no interest in the property at all.  

Potentially it may be considered deprivation of assets if at any point you need assistance from the council to provide you care at some future point (no 7 year limit on that one)

AskAsk

when my friend bought his flat a few years ago, the mortgage lender did not like the idea of my friend's nephew lending him money as their mortgage criteria takes into account other debts.  hie nephew saying he will lend the money and my friend pays him back whenever my friend has enough money, that is, no timescale and so no pressure, was not accepted.

ended up doing the simple gift and it was fine.  i don't think the bank will agree to you lending the money to cover the purchase of the property if your son is falling short from the mortgage monies.

IHT only applies if you die within 7 years and as someone had already pointed out, it is the estate that pays the tax so it is in fact better to give him the money now than wait until you pass away.  but if you trust him then do gift and he can pay you back.

silvercar

Brie said:

My mom did similar for my brother and it has caused some issues particularly when I needed a similar "loan" and she wasn't willing to provide it.

What she has done is logged the amount of the "loan" in her will and stated that the estate is divided up evenly but he doesn't get that amount.  What can be perceived as unfair is that he has had the amount for a number of years and there's no interest being tallied up so essentially I'm financially disadvantaged (or he has gained an advantage however you want to state it).

IHT won't come into it for you if you gift him the amount and then live for at least 7 years (as I understand it).  All it would take for you to help him is to provide a signed letter to advise the bank that it's a gift and that you have no interest in the property at all.  

Potentially it may be considered deprivation of assets if at any point you need assistance from the council to provide you care at some future point (no 7 year limit on that one)

You could just look on it that it doesn't change your position one bit. If your mom hadn't have given the money to your brother your situation would be unchanged. 

It won't be considered deprivation of assets if at the time of the gift, your mom didn't have any need for care. If she already shows signs of needing care than the local authority may argue it is DoA, otherwise it is immaterial.

I'm saying this from the position of helping one child with a deposit. Merely because they were buying and needing some help; my other child has not once uttered anything about any unfairness. 

diystarter7

Hi

Re "deprivation of assets." for care. My clear understanding is that is the person/s gifting did not have a diagnosis hwere they would certainly end up in care soon or were able-bodied and did not think they were going into care for the foreseeable futre, IMO the council would have a hard time proving it. I recall someone at the coucil telling me about this when i was asking for a client and forget the excat words but they said something like - it may be considered as deprivation of assets if it  was reasonable for the person to expect to need care and support.

If in any doubt, consult an expert in this area if you wish.

RMurphy195

Thought I'd added to this yesterday but can't find my reply now!

However I've spoken to my son's advisor and he reflects what many of you have said, that making it a loan, even if it doesn't need to be repaid, would still be counted as if it had to be and would affect his mortgage elegibility given the lenders policies (A change in which has caused the issue in the first place!) so a gift it has to be. At least for anything that needs funding prior to or as part of completion.

The adviser did comment, off-hand as it were, that when people in the same position went back for a re-mortgage later they had told him they had "gifted-back" the money!

My son, bless him, rang earlier concerned about repaying and asked "what happens if I die before I repay it all". As if I'd give a monkey's under those circumstances ... Told him that that repaying the dish wouldn't be something to be concerned about.

eddddy

RMurphy195 said:

The adviser did comment, off-hand as it were, that when people in the same position went back for a re-mortgage later they had told him they had "gifted-back" the money!

I'm sure that there are lots of people who do 'secret deals' in these circumstances, for example...

"I'll give you £25k towards your deposit, and I'll sign documents to say it's a gift, but I expect you to pay it back later." 

It's lying to the mortgage company - which makes it fraud. But if both lender and borrower keep quiet, the mortgage company probably wouldn't find out.

But if the borrower gets stroppy and decides not to give the money back, there's nothing (legal) that the lender can do to force them to. (e.g. The lender can't take the borrower to court, unless the lender admits that they committed fraud.)

mi-key

I would imagine a tiny tiny percent of these things ever end up in a dispute. If a parent and child are close enough to consider lending large amounts of money it's unlikely they wouldn't stick to any private agreement they have.

Keep_pedalling

If the OPs net worth takes their estate into IHT territory, then they should be gifting not avoiding it. If neither of them used up last year’s allowance £12k of this gift will fall outside their estates immediately as one year can be carried over. If the son is planning on getting married or forming a civil partnership their is another £10k to play with in the form of a gift in contemplation of marriage.  

If you can easily afford it keep things simple just give them the money, no strings, no tax issues with interest and no mortgage fraud.

silvercar

Keep_pedalling said:

If the OPs net worth takes their estate into IHT territory, then they should be gifting not avoiding it. If neither of them used up last year’s allowance £12k of this gift will fall outside their estates immediately as one year can be carried over. If the son is planning on getting married or forming a civil partnership their is another £10k to play with in the form of a gift in contemplation of marriage.  

If you can easily afford it keep things simple just give them the money, no strings, no tax issues with interest and no mortgage fraud.

Exactly this! Why make things complicated?

RMurphy195

Thanks all for your comments. In fact we gifted the money which we have treated as an advance on his inheritance, and had our wills altered to cover-off any non-repaid advances to our beneficiaries, both current and future, that are not customary gifts.