Second charge on property

[SassyPants87]

Not sure if this is the right place to post but husbands dad lent us £200k for a house a couple of years ago that is a second charge. He’s not asking for us to pay it back only in the instance that me and husband seperate/divorce and we would give the money back upon selling the house. He has told my husband that he doesn’t expect the money back and just wants us to have a nice house. However as he hasn’t gifted us the money and if he were to pass what would happen with the second charge? Would we have to pay inheritance tax on it? I have suggested to husband that if FIL genuinely wants us to have the money is he not better off gifting the money to us now in the hope that he’s still around in 7 years time? I’m not sure how it would all work

It might make a difference if he has a lot of money elsewhere - other house, savings etc.

We also have this issue with my PiL but for them it's all about control. It's an extremely sour point.

Never heard of anyone else with this though- interested to hear your thoughts and outcome?

Sounds like he wants to make sure you don’t get a share if you divorce before he dies.

FiL is attempting to keep control and avoid his money going out of the family if he dies. Fair enough.

From a tax planning point of view it's a disaster. If it were a gift without reservation, he would only need to live for seven years thereafter for there to be no IHT to pay, saving up to 40% of the capital (assuming he has other assets to use his tax free allowance

But then he would be back to the risk

Pays money, takes choice.

@MacarenaMacarena he does have quite a bit of money and owns some commercial properties. What difference would that make?

@coffeeneeded bit of a sore point for us too actually! I had suggested to him that he gift the money to my husband and then when we get the contracts for the house drawn up the money goes to my husband not me. I never wanted the money I just wanted to avoid a situation that might be tricky when he passed away and his money is on a second charge on the property. But interestingly he didn’t want to gift it to his son

@FinallyHere totally fine with him not wanting the money out of the family but like you said it’s the tax planning that’s a nightmare! I need to speak to a solicitor about it but I think my husband needs to have a conversation with FIL to understand if he ever wants to gift it or not

My in laws have had to instruct their own lawyers to sort it out for our new house purchase. I haven't asked, but I really hope it's cost them money to get it done.

It is a permanent cloud

If he gifts the money to his son rather than the current loan, I think it will be difficult to ring fence it from you in the event of divorce. Your son should ask his dad about his will, presumably the loan will be set against your DH’s inheritance. You may also need to factor in the loan in the case the money is needed for your DFIL’s care. May be a good idea to formalise the loan agreement so everything is clear, especially if your DMIL is still alive or your DH has siblings. I would leave your husband to deal with his dad on this, otherwise you may look greedy, after all you have the use of 200 K interest free.