PIL helping to pay off mortgage - what

[Swacademic]

Hi all
We have a small amount left on our mortgage and our current loan is due to expire at the end of this year.

We don't have the capital to pay it off but my PIL have very kindly offered to give us the money to pay it, which is amazing for us and we are incredibly grateful. They have offered it as a gift but we have said we would like to pay them back on a regular monthly basis. For context, they are late 70s/early 80s, currently in good health (touch wood). We don't have any other debts.

My question is, are there any financial consequences/repercussions of making this arrangement that we need to be aware of collectively?

Apologies for thread title - I can't seem to change it!

As far as I can see, the only issue is potential inheritance tax. If their estate is likely to be liable for inheritance tax, and they are planning to leave their money to your DH anyway, then they probably want to treat the gift as a 'potentially exempt transfer', which means that if they live for seven years after giving it, then it doesn't count as part of their estate and won't be included in IHT calculations. If you treat it as a loan, then the whole amount will be part of their estate.

You don't say how much a 'small amount' is, but they could potentially also use their tax-free allowance (including from last year).

Inheritance tax avoidance rules and possible council care home deprivation of assets are the things to watch out for. Is there any point paying them back if that money would get taxed when they die?

I hope to help my children, having not had any financial help myself (yet). I think its a positive thing if there are no conditions around the gift.

Look at the tapering liabilities if they die within 7 years. My PIL did similar and there were no liabilities to pay.

How much money is it?

Thanks all. I don't really know their overall financial position although they are comfortable (and can obviously afford to give us the money). It's 40000.

I'm not sure whether or not they'd meet the IHT threshold. I don't think they want to give us the money to avoid care costs - just being kind/supportive. But I guess one of the things I was worried about was then having enough money to afford care if/when they need it and that was one of our motivations for paying them back.

Good to know about tapering liabilities - I don't know much about IHT at all!

https://www.gov.uk/guidance/work-out-inheritance-tax-due-on-gifts

Why not simply accept the gift? If you are going to pay it back you may as well get another mortgage.

That’s not the same. The parents probably won’t charge interest, and there will probably be a lot more flexibility ie if OP or her husband lose their jobs, or need to reduce how much they pay each month, or need to take a break on paying etc.

Could you treat it as a gift but put your proposed repayments into a savings account - that way if they do need help with care costs in the future you can help them as needed but avoid the £40k being part of the estate?

Yes that's what we were thinking

Personally I would take it as the gift.

If there is an inheritance tax liability potential they can express the gift to be free of tax and any potential tax would be paid from the estate.

If one or other ends up in a care home and all their assets are used up and the gift looks like it might be reclaimed as a deprivation of assets at that stage you can re-mortgage against your mortgage free property to repay it.

Indeed they should each give £20,000 to minimise any form of liability arising anyway.

As per PPs, it is potentially financially advantageous for them and you. There is a limit on how big an amount they can give you directly but if they are paying directly for something themselves, I think they can pay what they like - just as if they decided to buy an expensive holiday or a property for themselves.

So it is a way for them to 'give' you that money indirectly and without it being subject to inheritance tax.

Take it as a gift. It’s no use giving it back to them at their stage of life, you’re just putting it back into their estate for inheritance tax purposes.

If taken as a gift, then as long as they live seven years and don’t require care necessitating the deprivation of assets rules coming into play, then it’s out of the IHT net, which is likely what they would want!

There is no limit on how big an amount they can give you directly.

For whoever said about Tapering relief - it only kicks in after £325k has been given away so not relevant to £40k.

£6k now, £6k after 6th April takes care of £12k of the £40k ( £3k each gifting allowance per tax year).
If their estate is under £1 million it doesn’t matter anyway.

If houses are expensive in your area, parents in law may be trying to do exactly what we are in the process of doing at the moment. We have worked out that when the house is taken into account, our estate is worth just over 2 million. At 2 million we start to lose tax free allowances on inheritance tax. It thus makes sense to give some to our children and keep the estate value below the 2m threshold. We should (barring unforeseen problems) live at least 7 more years and our children could do with some help now. So, we would not want it back!

Yes, this is right, except that if they didn't use their gifting allowance last year, they can carry it over to this year. So they could do £12k now then £6k after 6th April.

I also think deprivation of assets is irrelevant, as they've no current expectation of needing care, and even if they did, £40k wouldn't go very far.

If OP's DH has this kind of relationship with his parents, I think a frank discussion about estate planning would probably be a good idea.

Why not take it as a gift? It probably gives them great pleasure to help you. You don’t say if you have children, but if you do you might want to do the same for them one day.

Thank you all for the advice - lots of things I didn't know about and hadn't considered. It's definitely given me food for thought about accepting their offer as a gift. We're not really the kind of family that talks about money but I'll have a chat with my DH and see what he thinks about us talking all this through with PIL. We do have children and they have a really close relationship with my PIL (who are generally amazing)

Don’t make it difficult, just accept it as a gift. That’s what parents do!

Actually that sounds like a good idea

Why pay it back if they want to give it to you?

this is correct advice. There is a spousal transfer on iht allowance for the primary residence which means in practice iht isn’t payable until estate is really big.

so unlikely you’d pay iht unless your parents have a very valuable house and/ or a massive investment portfolio . in which case they should be doing iht planning and gifting you money regularly

Agree with others. Keep it as part of inheritance tax planning.

What I would do, and I may be in this position soon so have been discussing with my Dad, is make repayments into a separate account in your name but that they could call upon if they need it.