Tax implications of a loan, offset mortgage

[Hermano]

I've just remortgaged with an offset mortgage.

I've also just got PoA for my grandmother. She has a lot of money in savings and is (or rather I am) currently selling her flat, so will soon have more than my total mortgage debt in savings.

She is in a residential home, self funding.

My question is, if I borrow money from her account, pay her back the 0.5% interest she was earning while it sat there and (for simplicity's sake) put enough money into my offset to cover the whole mortgage, then I'll effectively have a zero interest mortgage. I can pay it off much more quickly, gran doesn't lose out, win win.

This will save me a few thousand pounds every year.

Is there any tax implication to doing this? Or so long as I get it all in writing and pay her back one day can I just do what I want?

To be clear the point of this is not to avoid inheritance tax, paying for care home or anything dodgy like that. The motivation and sole aim is to help me with my mortgage. Why have eg 200k mortgage at 2% and 200k in savings earning 0.5%?

There are no tax implications, but holding PoA and using her funds for your personal benefit is an abuse of your position. Please speak to a solicitor before doing this.

Why is it an abuse of my position bombardier? I haven't made any decisions yet, I'm PoA along with a couple of others in my family and am discussing what to do with them. All decisions will be made jointly with everyone agreeing and our number one aim is to secure grant's future. I'm just interested how doing something which to me seems neutral to her, and which I'm 100% sure she'd agree to - I will ask her if we decide to proceed, although I don't think she has enough capacity to really understand, certainly not to recall the conversation two minutes after it happens - could be viewed as 'bad'

This is exactly why I've posted on MN, to get other viewpoints I haven't seen yet in my initial thinking

Thanks for any input, really appreciate it

Just FYI we're leaving more towards dividing the 'profit' from the loan between me, gran, and the other PoAs to ensure fairness, but I didn't think this detail was relevant to the question as I don't think dividing or would make a difference to tax

Your gran isn’t a licenced lender, so the loan won’t be legal. She will therefore be deemed to have given you the money, and so if she passes away within 7 years you’ll be liable for inheritance tax on it. (She can only give you £3k per year tax free)

I'm not trying to avoid inheritance tax, very happy to pay everything owed

www.nhs.uk/conditions/social-care-and-support-guide/making-decisions-for-someone-else/giving-someone-power-of-attorney/

"You're also allowed to make gifts on behalf of the donor in certain circumstances.

For example:

on occasions such as birthdays or marriages to those related to or connected with the donor
to a charity the donor has supported in the past
Acting as an attorney means you should maintain a duty of care to the donor, not to benefit yourself. It's important to avoid any potential conflicts of interest.

Specifically, you must keep the donor's money and property separate from your own, and keep accurate accounts in all of your dealings as an attorney."

Having POA does not give you free rein to use the money as your own and/or for your own purposes. The money is not yours.

Presumably you have POA because she cannot deal with her own affairs, so if she cannot recall the conversation asking her if you can do this is not going to make it all ok, is it.

www.bbc-law.co.uk/legal-news/attorney-powers/

The motivation and sole aim to help you with your mortgage, not to benefit your grandmother and so would be a conflict of interest.

What if something happened and you were unable to maintain repayments on the mortgage. The bank can offset the savings to repay the loan and gran has lost her savings.

The Court of Protection would I think be interested in what you are proposing to do, and could appoint a court guardian to look after your gran's affairs. It is her money for you to administer in her best interests, and not yours.

Just Because you gave POA doesn’t mean you can move around her money as you like. You have been entrusted to see over her money in a way that serves HER best interests not YOURS 😤

OK thanks for input

One last angle on this... I'm not trying to be obtuse, really trying to understand

Let's assume I pay £5k pa interest at the moment on my mortgage

Let's assume my gran's savings, the full amount which would offset my mortgage, would earn £1250 pa

Let's further assume there is no risk of me falling behind on payments etc (they're at a level far below what I can comfortably cover)

If you assume all the above then is there any situation you think it would be ethically OK to put savings short term into the offset account? If I paid gran all the benefit, ie she gained £3750 and I was cash neutral out of the arrangement? That would be me using my own situation to invest her money at the best rate we could find to no benefit to me

How about if we went 50/50, so she got £2,500 per year instead of her current £1,250, and I got the other £2,500? Or I suppose actually since she's already getting £1,250 then let's say we split the extra benefit 50/50 so she gets £3,125 and I get £1,875?

I am genuinely after opinions here so please don't jump on me and tell me I'm evil incarnate, just interested if there is any way to make the money work better. Benefit for me is great, and no way will my grant's money ever be in danger, but I don't want to do anything shady. Again - I'd like to emphasise my wish to avoid shady dealings is the reason I'm posting

Cheers

You are effectively taking the interest she could earn elsewhere and using it yourself

If you want to avoid shady dealings, then please just stop trying to use your gran's money for yourself.

Doing anything with her money which only benefits you is shady. Like paying down your mortgage with it, regardless of what wangles you think you can come up with re the interest.

There are no two ways about it. It would be an abuse of your position.

Huge conflict of interest. This is absolutely not ok - see link above about the fact that you must keep your own finances separate.

Doing anything with her money which only benefits you is shady

How is sharing benefit 50/50 only for me? Or giving it all to gran?

The conclusion seems pretty unanimous so I'll take this, and the link (thanks farmer ) to the next family chat and share with the others.

We didn't really think of it like this, it felt like a no lose for gran and win all round for the rest of us, and we've done a lot for gran in the last few years to no benefit at all (which is fine) and in many cases fairly significant detriment to ourselves due to her declining health, so this felt like a no-harm rebalance. However it is clear it won't be viewed like that by any authorities so we may have to leave the idea for now...

Cheers for inputs

I can see why it’s tempting but really you should be trying to maximise the return for her so she benefits. The 0.5% is a pittance but you can do better for her in her own right rather than seeking to benefit you. You would be creating a major conflict of interest and abusing your powers. If she is self funding and suddenly a £100k loan disappears you could be seen to be depleting assets to avoid paying for social care.

I think the issue here is that you could land yourself in a quagmire - acting as PoA you are meant to make decisions to the benefit of the person not yourself - regardless of what you think they may have said.

Less dodgy is if a.n.other PoA makes the decision (in writing) to allow you to hold the money (to offset your mortgage) but then you still have the issue its to the detriment of grandma.

Morally there is no way round it its wrong to do this. You need to provide and keep accounts of what activities financially there are for the person you are PoA for so best kept straight and clean and no messing around - be whiter than white

Just wondering, can your bank create an offset account where it could be held separately to your own funds, but used as offset in interest calculations? I have a vague idea that such things exist eg for parents to help children buying property. If you could get something like that that would keep it more clearly "labelled", and enable you to pay the interest to your grandmother instead of the bank, which should surely be ok.

Agree with all PPs that the conflict-of-interest problem makes this very difficult.

Also, re: her coming out "neutral": it would be more risky for her to lend the money to you rather than leave it on deposit with the bank. Even if you can easily cover payments right now, your circumstances could potentially change, e.g. due to job loss, health problem, etc.

You can't do it I am afraid, however sensible it looks to you.

Also as said above she will not necessarily come out neutral. She might need the whole sum within 5 days to pay for life saving surgery in the US or you might go bankrupt and any money in your account would disappear. This is why the law requires you to keep her money separate. You would be allowed to give her grandchildren say £20 per birthday if she has usually done that kind of thing and does not need that money for herself.

Do not break the law for the sake of a few thousand pounds a year savings to you.