Advice needed on financial ' gift' from family

[MakesCakesWhenStressed]

Dh and I atw looking at a part buy scheme, but don't have much in the way of savings. Some of our family have offered to lend us the money for the deposit and we've worked out the repayment schedule however there is a snag. The loan would have to be classed as a gift for some reason (not quite sure why, but the IFA told me) but if they do that then we'll have to pay tax on it, won't we? We can't afford to do that and ost them back. This sucks :(

Does anyone know about this kind of thing and can advise me?

Pay them back, not ost

If it's classed as a loan then it will be taken into account for your mortgage. I don't think you have to pay tax on a gift - as long as they don't die within 7 years??

The tax in inheritance tax I think rather than income tax and so it is only an issue if your parents die within 7 years and then the tax would be on their estate rather than something you have to pay.

www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

iim misreading

Sorry, baby hit send. I was asking if I was misreading that site?

I've never heard of anyone paying tax on a cash gift.

Yes you are. In the case of inheritance tax, if the deceased's estate qualifies and they have made large cash gifts (exemptions are listed) in the seven years preceding their death, those gifts could be liable for tax. If the donor stays alive, it's not an issue.

That's for those who are giving the gift not receiving. I've a feeling that even if you do pay tax there is an amount of capital gifts allowed, although any interest it generates would be liable to Income Tax.

It's not a gift, it's a loan. If the person loaning the money dies withing seven years, the OP would still owe the outstanding amount to the estate. And if the OP died, her estate would still have to repay the loan.

The IFA is confusing a GROB (gift with reservation of benefit) with a loan. Tell him it's not a gift, it's a loan. A proper loan with a legally binding written agreement.

If you pay interest on the loan, the person loaning the money should declare that as income on his/her tax return.

OP, the only way the loan could be classed as a gift would be if the property you are purchasing was enjoyed to "the entire exclusion, or virtually the entire exclusion, of the donor".

the gift with reservation of benefit provisions in Finance Act 1986, state as follows:

'? the property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him by contract or otherwise.' (section 102(1)(b)).

SO long as the person loaning you the money has no beneficial interest in the property you are purchasing (they can still be frequent visitors to the property and stay there for visits) IHT rules do not apply. It is simply a loan.

So I don't need to worry about this then? If asked again by the IFA, building society or whoever what should we call this loan? Just for clarity...

I really appreciate the advice, by the way, especially as my dh keeps teasing me about how I regard mn as an authority on anything and this will prove me right!

Is it not the giver who is liable for gift tax? The donor is generally liable, as it could be used as a tax avoidance ploy.

As you're planning to make regular payments to your relatives, include those when/if asked about your regular outgoings and call it 'loan'. I don't think you have to be 100% specific about the nature of the loan.

Thanks, that clarifies things somewhat. We're actually going to repay then using my income (self employed) and dh's bonus (not guaranteed) - so from minutes that can't be counted forwards the mortgage