Loan from Family Business

Lbuk

I jointly own a house with my husband.

However, we purchased the house with the help of a large loan from his families business.

Repayments are not being made on the loan, I think it’s a tax dodge so if they die it isn’t counted as a gift, but it means that I could be held to repay my share if we divorce.

Could anyone advise me on whether the loan could be recognised as a gift and therefore included in my husband’s assets should I divorce him?

Keep_pedalling

When you say his family business, do you mean his parent’s business? Is this a limited company? Do you have a written loan agreement in place? 

Do you also have a mortgage on the property? 

Sorry for all the questions instead of an answer but it is important.to understand what sort of loan we are actually talking about, and whether it really is a loan or a gift.

MattMattMattUK

Lbuk said:

I jointly own a house with my husband.

However, we purchased the house with the help of a large loan from his families business.

Repayments are not being made on the loan, I think it’s a tax dodge so if they die it isn’t counted as a gift, but it means that I could be held to repay my share if we divorce.

Could anyone advise me on whether the loan could be recognised as a gift and therefore included in my husband’s assets should I divorce him?

It depends how it is structured, if it was an amount of money transferred over then it would be down to a court to decide, if it is a loan with appropriate paperwork then it is a loan. 

Companies cannot make gifts to individuals, so it is not a tax dodge in that sense. If they gave the money personally seven or more years before they died then there would be no IHT due anyway. 

Keep_pedalling

I think I have answered some of my own questions by looking at the OPs previous thread about her in-laws using some dodgy scheme to pay school fees by making her children shareholders in their limited company with the dividends paying for school fees., so this is a ‘loan’ from her in-law.’s  company which would have some interesting corporation tax complications for that company if it is not being paid back.

 Still need to know if the property is mortgaged or not and if there is a written loan agreement in place or not. One further question is the OPs spouse a director of this company?

Grumpy_chap

Loans from Ltd Companies can also give rise to income tax liabilities if there is not a proper agreement and interest being paid.

Based on the additional information shared by @Keep_pedalling it seems as though the OP's in-laws are willing to sail very close to the wind and push the boundaries of any rules.  I'd be nervous.

Keep_pedalling

Sorry about this, one more question. Does the business have a charge against the house?

silvercar

Interesting if there is a mortgage. Normally a lender would require a deposit to be gifted rather than loaned. If it is documented as such, then anyone would be on wobbly ground asking for repayment of a gift.

All guesswork, but the parents' could have taken a director's loan from the company and then gifted that money to their son for him to use as a deposit. 

The bottom line is that gifts don't require repayment, loans do. How and when they require repayment depends on the terms they were given.

 

MattMattMattUK

silvercar said:

All guesswork, but the parents' could have taken a director's loan from the company and then gifted that money to their son for him to use as a deposit. 

If they took a DL and did not convert it to dividend then it becomes taxable anyway, at a punitive rate, so it makes more sense to convert it to a dividend. 

https://www.gov.uk/directors-loans/you-owe-your-company-money

[Deleted User]

@Lbuk please return to your thread.

Hoenir

Lbuk said:

Could anyone advise me on whether the loan could be recognised as a gift and therefore included in my husband’s assets should I divorce him?

What substantive evidence can you provide that it is a gift?  As everything else has no direct bearing in the event of you divorcing. Whatever they are up to.