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Original poster

My parents have given me money to pay off mortgage faster- is this legal?

40 replies

mortgagelife · 19/05/2022 16:24

So my parents have given me 70K so I can pay off my current mortgage a lot faster. Is this legal? I said I'd pay it back over the years and they said no to begin with but have now agreed. It's still a huge help as it means I won't have to pay any interest on it, like I would if it was still with the bank.

I am due to renew my mortgage this year and I am so grateful that my parents are in a position to help me, and want to help me, but is this going to be questioned? Will I/they need to declare anything?

OP posts:

tootiredtobother · 19/05/2022 16:29

yes if it is out of income that does not leave them poor, possible have to survive 7 years after the gift to avoid inheritance tax.

Ilikewinter · 19/05/2022 16:29

Honestly im not sure but does this fall under depreciation of assets, i think if a parent dies within 7 years of gifting money theres something about paying it back, or on a sliding scale. ??

Tippexy · 19/05/2022 16:30

If it is a loan and not a gift then you will be hard pressed to for a mortgage company who is happy with that, as it means they have a charge over the property.

Tippexy · 19/05/2022 16:30

to FIND

HollowTalk · 19/05/2022 16:30

How old are your parents and are they in good health?

DeskInUse · 19/05/2022 16:30

As long as it's not ill gotten gains and they aren't the local mafia or drug dealers it's completely fine.

If they die within 7 years you might have to pay tax on it, or if they go into a care home you might be expected to fund some of that, but apart from that it's their money to do with as they please

Discovereads · 19/05/2022 16:32

Its sounding like an interest free loan to me as you will be paying it back not a gift. Do you have a loan agreement written up and signed by you and them?

It would have to be declared as a debt when renewing your mortgage.

TomatoorChips · 19/05/2022 16:46

You have to declare the loan repayments when you remortgage- they are an expense.

The gain is minimal given current interest rates and tbh I would rather pay a bank interest than be beholden to family members. Private loans (and it is a loan and not a gift) are rarely a good idea.

Plus if they need care then you may have to sell your home or remortgage as it may be classed as depiction of assets. Age and good health is immaterial- they could be diagnosed with a condition tomorrow

Cant really see why you think this is a god idea?

perimenofertility · 19/05/2022 16:53

My parents did something similar for me. They wrote a letter declaring that the money was a gift - the bank wanted to see this. I then paid my parents back over a period of a few years. We didn't consider it a loan, it was thought of more and family helping out family, as in, if I had decided not to pay them for whatever reason they would have had no legal claim on me - but both they and I knew I would pay back.

Staynow · 19/05/2022 16:56

Better to have it now free from inheritance tax and so it doesn't up up on care home fees - and as long as they don't need care of die in the next 7 years then no problem.

jessica2005 · 19/05/2022 16:57

This reply has been deleted

Message deleted by MNHQ. Here's a link to our Talk Guidelines.

Staynow · 19/05/2022 16:57

Oh and my parents gave me 20k for a deposit - no one asked any questions about where it came from but things might be different now as that was 25 years ago

Lindy2 · 19/05/2022 16:57

I think it's a lovely thing for your parents to do. It's probably better to be a gift rather than a formal loan. You could make informal gifts back to your parents if you wanted to but having it as an official loan could get complicated. I imagine there's plenty of parents and children doing similar.

If it's a gift, in terms of inheritance tax it would form part of their estate for 7 years. As long as they live over 7 years no inheritance tax would apply.

If they went into a care home potentially it could be interpreted as giving away assets to avoid that money being used to pay care fees. If you've no reason to expect them to near care in the foreseeable future then really it's unlikely to be a problem.

TomatoorChips · 19/05/2022 16:57

Staynow · 19/05/2022 16:56

Better to have it now free from inheritance tax and so it doesn't up up on care home fees - and as long as they don't need care of die in the next 7 years then no problem.

Did you read the OP/

It is a loan- not a gift. It would fall under the estate

madmay · 19/05/2022 17:04

Even if it were a gift, are there not rules about maximum amount able to be gifted every tax year? I had it in my mind that it was only about £3k

Lipsandlashes · 19/05/2022 17:06

Isn’t inheritance tax only applicable over £325K of money and assets though? If so, no problem OP. As a PP said ask them to write a letter declaring it a gift.

Lavenderlast · 19/05/2022 17:07

Tippexy · 19/05/2022 16:30

If it is a loan and not a gift then you will be hard pressed to for a mortgage company who is happy with that, as it means they have a charge over the property.

Wrong

Mia85 · 19/05/2022 17:08

madmay · 19/05/2022 17:04

Even if it were a gift, are there not rules about maximum amount able to be gifted every tax year? I had it in my mind that it was only about £3k

There is an annual exemption from inheritance tax of £3k and I assume that's what you're thinking of www.gov.uk/inheritance-tax/gifts

Sometimes people confuse this and think there is a rule that you can't give away more than this in a year. That is not the case. The law does not stop you from gifting your money. Whether it is wise in the circumstances and whether it has tax/care implications are different matters.

Singleandproud · 19/05/2022 17:10

I can't help you with the mortgage bit but when my grandparents died my parents used the inheritance to buy my flat for me as a 0% loan. I have a Declaration of Trust drawn up which is linked to the deeds of the house as I pay back £50 a week and the DoT says that if I decide to sell before I have fully paid it back they get their money back first.

SlightlyGeordieJohn · 19/05/2022 20:32

It is completely legal, there’s no tax implications either.

However, you are just switching a loan with the bank for a loan with your parents, so are you clear in what this is achieving? When you re-mortgage you will need to declare this debt to your new lender, so it will affect your affordability, and some lenders will prefer not to lend as they will feel that your parents may be able to establish a charge on the property ahead of them should you default.

SlightlyGeordieJohn · 19/05/2022 20:34

madmay · 19/05/2022 17:04

Even if it were a gift, are there not rules about maximum amount able to be gifted every tax year? I had it in my mind that it was only about £3k

There is no tax on gifts in the UK, and no limit on how much can be gifted. If the person giving the gift dies in the (I think, no certain without checking on the term) seven years following then it remains in their estate for the purposes of calculating inheritance tax.

KalaniM · 19/05/2022 20:37

How lovely ! I would accept it as a gift, it keeps it simpler for bank / mortgage paperwork.

SeaToSki · 19/05/2022 20:45

I would formally accept it as a gift (in writing) and then informally pay back what you want to as and when you want to. That way there are no strings attached going forward (assuming they dont both die in the next seven years)

Whyareblokesonhere · 19/05/2022 20:53

Is this clearing your mortgage though or just a small % of it, i.e. you will still need to have a mortgage?

Mia85 · 19/05/2022 21:00

Do you have siblings OP? If so it would be especially important to have a clear understanding of whether it is 'really' a gift or a loan as it's the kind of thing that can become very messy if there isn't clarity.

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