Tax implications on receiving loan repayments from partner?

My situation is that my partner and I would like to buy a house. We're not married and generally keep our finances separate, she earns quite a bit more than me, however, we'd like to buy a house together and I have significantly more capital than her. Rather than getting a mortgage, we could pay for the house in full and then she would then repay me the difference over time, so that eventually we get to 50:50.

Are there any tax implications with me receiving the money, particularly taking the fact that there would be interest to take into consideration.

Any glaring flaws with this set-up?

Comments

  • DullGreyGuy
    DullGreyGuy Posts: 8,953
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    edited 9 November 2023 at 2:40PM
    The issue, as with any private lending, is enforcing the debt if things don't work out 

    Presumably you are thinking you'll be tenants in common and adjust the percentage each year until the debt is repaid or what? Obviously time/hassle etc involved in doing that but a risk if you go straight in at 50/50 or as joint tenants. Tenants in common has its own potential set of issues in certain circumstances.

    The interest you charge her will just be interest received same as any other. 
  • Keep_pedalling
    Keep_pedalling Posts: 16,122
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    You would pay income tax on any interest you charge her. The main issue is protecting your loan so you need to make sure you get an appropriate deed of trust drawn up.
  • 400ixl
    400ixl Posts: 2,593
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    As said, if you don't charge interest then there won't be tax implications as far as I am aware. The challenge is how do you protect each others interests without making it complex and having to be altered on too regular a basis.

    Perhaps you set up a contract with a schedule that she buys equity on a yearly basis, but is that at the value at a fixed point in time or value at the time of payment?
  • gwynlas
    gwynlas Posts: 1,614
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    And what happens if the relationship breaks down or either of you dies??
  • Jeremy535897
    Jeremy535897 Posts: 10,369
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    The first question is whether you want to marry or become civil partners. If you do, you can forget about issues like inheritance tax, which otherwise may require formal documentation to avoid gifts between each other (which might become relevant if one of you should die). The thought of having to alter percentage shares on an annual basis with a Land Registry that takes forever to do anything is daunting, or if you do it with beneficial interests you will need an annual document and registration with TRS. There might also be stamp duty issues.
  • If you want to keep finances separate, why not continue to do that? You use your capital (which you already have) to buy the house. It’s 100% yours. She uses her higher income to aggressively save a large pot. Which is 100% hers. If she’s not paying you any rent or interest, she should be able to put loads away. You would have to work out what would be a fair split of all other household expenses to keep things equitable.

    No need for any loans, her paying you interest or messing about with gradually changing house percentages.

    If you split, your assets are still separate and it’s clear what belongs to who. She wouldn’t have any claim on the house, but she should have a sizeable nest egg/deposit instead, the longer you are together, the larger it would be.

    At some point her pot will hopefully be enough to cleanly buy out half your house at whatever the house is valued at that time. If that’s what you both still want to do.

    Or if you marry, house and saving pot can get shared at that point anyway. If you want.

    (If the plan was that she was going to also contribute some cash up front for the purchase, then that still works. The percentage ownership would remain fixed, based on what you both put in, until she buys out the rest of her 50% with her saving pot or you get married.)

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