Lending money to daughter to buy a house (Bank of Mum & Dad question)

user1977

RogerPensionGuy said:

If house price drops a 100K and child moves out and house sold. What happens to the proceeds of the sale and the missing 100K.

Well, that would be one reason for getting a security over the house, and then the OP knows that (like any other negative equity situation) the house can't be sold without their consent.

Sea_Shell

Is your Daughter an only child?

  

kipperman

I would imagine that it is perfectly possible - although if it were me I would seek proper legal advice( i.e not just random strangers on t'internet) just to cover the host of  eventualities that might not be obvious at the outset - of which a few have already been mentioned. I might be a little concerned if my daughter got married and the husband was paying part of the "mortgage" - what would then happen if they split up? 

Olinda99

why are you charging your daughter interest?

you are likely to have to pay tax on it although obviously I don't know your other income

i would not charge my daughter interest - she is my daughter.

yes if you want to you can agree that she pays you back a bit of the capital each month which would not be interest so therefore would attract no tax

why do you want a charge on the property are you proposing to repossess the property if she doesn't pay you?

if you have a charge that the money will remain part of your state and obviously in the forms of time will need to be considered for inheritance tax if you don't have a charge that after 7 years it drops out

also and it may not apply to you you may want to consider what happens should you need to apply for means tested benefits in the future

HampshireH

If this is your retirement fund, are they funds you won't actually need in retirement?

Because you won't see these funds in their entiretyever again unless she chooses to sell (which she will be under no obligation to do ever).

And if she does sell she won't be able to afford to move because she won't have a deposit (unless she actively saves for it and all other associated costs whilst paying your loan back)

A lot of people would struggle with the mindset of saving for that. Especially someone who haven't done so to get their first home and perhaps doesn't appreciate the commitment to saving.

It would probably be more sensible to teach her the value of saving for her goals and then when she reaches her target deposit perhaps you match it with a gift.

Keep_pedalling

Olinda99 said:

why do you want a charge on the property are you proposing to repossess the property if she doesn't pay you?

if you have a charge that the money will remain part of your state and obviously in the forms of time will need to be considered for inheritance tax if you don't have a charge that after 7 years it drops out

also and it may not apply to you you may want to consider what happens should you need to apply for means tested benefits in the future

This is a loan not a gift, it remains part of the OPs estate regardless of whether there is a charge on it or not. Having a charge on the property is important. It protects the OPs loan in the event of their daughter running in to financial difficulty, pre deceasing them or just going rouge. If the daughter married it also protects the loan from a subsequent divorce. If the OP has other children it also protects their inheritance.

If they go ahead with this a proper loan agreement needs to be drawn up, and repayment records also need to be documented. 

ProDave

Daughter is only daughter.  She will inherit the lot on our death anyway.

By the time this happens (if it happens) I will be retired living on private pension income (too young for state pension yet)  SWMBO will still be working for a short while longer.

If we just kept this pot of money as savings, the interest needs to be declared anyway (that portion that we have not yet had time to shift into ISA's) so declaring any interest daughter pays should be no different to declaring what a saving account pays us.

RHemmings

ProDave said:

Daughter is only daughter.  She will inherit the lot on our death anyway.

By the time this happens (if it happens) I will be retired living on private pension income (too young for state pension yet)  SWMBO will still be working for a short while longer.

If we just kept this pot of money as savings, the interest needs to be declared anyway (that portion that we have not yet had time to shift into ISA's) so declaring any interest daughter pays should be no different to declaring what a saving account pays us.

Why do you want to hold onto the money, rather than just giving it to her now? Note: this is a genuine question asking about your reasoning - I'm not suggesting that you should do this. 

Keep_pedalling

RHemmings said:

ProDave said:

Daughter is only daughter.  She will inherit the lot on our death anyway.

By the time this happens (if it happens) I will be retired living on private pension income (too young for state pension yet)  SWMBO will still be working for a short while longer.

If we just kept this pot of money as savings, the interest needs to be declared anyway (that portion that we have not yet had time to shift into ISA's) so declaring any interest daughter pays should be no different to declaring what a saving account pays us.

Why do you want to hold onto the money, rather than just giving it to her now? Note: this is a genuine question asking about your reasoning - I'm not suggesting that you should do this. 

Definitely worth thinking about making at least a part of it a gift if your joint estates are near or above your IHT exemptions and you don’t have any long term plans for the savings. 

ProDave

RHemmings said:

ProDave said:

Daughter is only daughter.  She will inherit the lot on our death anyway.

By the time this happens (if it happens) I will be retired living on private pension income (too young for state pension yet)  SWMBO will still be working for a short while longer.

If we just kept this pot of money as savings, the interest needs to be declared anyway (that portion that we have not yet had time to shift into ISA's) so declaring any interest daughter pays should be no different to declaring what a saving account pays us.

Why do you want to hold onto the money, rather than just giving it to her now? Note: this is a genuine question asking about your reasoning - I'm not suggesting that you should do this. 

Our retirement plans are based on pensions, private and state, and this pot of money with no restrictions on how much we spend and when and no tax implications of spending it.

The theory is pensions will cover day to day needs and "the pot" is for paying for some big ticket items on the bucket list so we do in retirement all the things we want to do.

If this loan goes ahead it will be about half the pot.  I believe the other half of the pot is still enough for the bucket list items, but it is way way too early in our retirement to be giving half the pot away.  So in effect we would be trading that half of the pot for a regular cash income.