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Original poster

Tax avoidance? Parent buying house for child on loan.

454 replies

emmalinewre · 15/12/2024 08:48

Hi!
A few year ago my dad gave me and my sibling £200k each to buy a house each - on the condition that we sign a contract with him paying him back £600 per month on an ongoing basis.
Friends at the time were pleased for us, we're very lucky to be on the propery ladder - I appreciate all that.
However, it has become rather a burden as that is a lot of money a month to find, and I suspect this is some sort of way my dad can avoid tax - as he refers to these monthly payments he gets from us as his 'income.'
He also has around ten different savings accounts, some in the UAE, which seems a bit shifty.
Can anyone with knowledge of tax/similar advise as to how he may be benefitting from this arrangement?
My sibling thinks its all great and he's just a wonderful parent, but myself and husband feel rather locked in and controlled financially by the situation - and with no way out as its not as if we can buy out of it.

Thanks!

OP posts:
twobluehorses · 15/12/2024 08:50

Sell the house and pay him back if it’s a problem for you

Whyherewego · 15/12/2024 08:50

It's a loan. You are paying it back.
What does the contract say about interest and repayment?
His tax affairs are none of your business!

LittleBearPad · 15/12/2024 08:52

Well you could borrow the remaining money from a bank and repay him. Of course you’d then need to pay the bank back with interest.

The repayments are income as he essentially lent you the money.

CatherinedeBourgh · 15/12/2024 08:53

Loans are not illegal.

If you don't want to take out a loan, don't. Don't take one out and then moan that you have to repay it.

Dontwearmysocks · 15/12/2024 08:53

£600 a month and you have a house of it? You’ve done well and I’d be thanking your dad.

TheOtherAgentJohnson · 15/12/2024 08:54

What tax would he be avoiding? It's a loan, you're paying him back. It wasn't forced on you.

I have a similar arrangement with my mother and it works well for us. I'm extremely grateful to her.

2025istheyear · 15/12/2024 08:54

How much have you paid him back so far? Sell the house and divvy up with him and do it all on your own. All by yourself. You and DH will be happier…..hopefully.

Radishknot · 15/12/2024 08:56

Could you rent a house for less than £600?

NoWordForFluffy · 15/12/2024 08:57

How is £600 a burden when you also have a DH? That's bloody cheap for a mortgage or rent these days. If you weren't in that house paying £600, where would you be living and how much would it be costing you?

HoundsOfHelfire · 15/12/2024 08:58

You’ve basically had an interest free mortgage through your dad, saving thousands. Were you hoping just to be gifted a lump sum of 200k?

IAmNotDarling · 15/12/2024 08:58

No, no tax avoidance in itself to lend your children money and then have them pay you back. It might be a way to launder money that you haven’t paid tax on in the first place (evasion).

Shopgirl1 · 15/12/2024 08:58

It’s not income in the sense of new money he earned. He already paid tax on it. You are just giving him back his money in instalment's.
In what way is it a burden? Surely if he hadn’t done it you would have had to get a mortgage and pay interest, or else had to pay rent. Is it not just a very good deal on your accommodation costs?

Jingleberryalltheway · 15/12/2024 08:59

Is he charging you interest? Or do you essentially have an interest free mortgage?

beachmum1 · 15/12/2024 09:00

If you aren't paying interest you have for a certain deal from your dad! Can't see how anyone benefits more than you do!

Nolegusta · 15/12/2024 09:00

Were you expecting folk to say you should stop paying it or that he shouldn't expect it, just because he's your dad? Perhaps him referring to it as his income doesn't feel that nice, but if he hadn't given you the initial lump sum then he'd presumably be living off that. If the terms were clear from the start then I don't see any issue. You'd also be tied to any bank mortgage/loan commitment just as you're tied to this.
Is there a back story regarding your relationship with your dad?

Arseynal · 15/12/2024 09:01

A £200k mortgage would cost about £900 a month over 40 years so if your dad lives 40 years from the initial loan then you are £300 a month up on the deal. That’s assuming the loan dies with him. It can be awkward borrowing from family though so maybe you should consider remortgaging or selling and paying him back as a lump sum if you are unhappy with it. What do you think you should repay for a £200k loan?

SheilaFentiman · 15/12/2024 09:02

What outcome are you looking for? You mention his accounts in the UAE being dodgy, but it doesn’t sound like you are concerned that you were loaned “illegitimate” money in any way. You just don’t want to repay it…?

Do you have a mortgage as well as the loan?

Alarae · 15/12/2024 09:02

It is no different to if he kept the 200k in a bank account and took £600 from it every month. He's loaned you the funds and you are paying it back- presumably interest free as well? He's literally getting no tax benefit from it, as it doesn't even save on IHT.

Putting in a mortgage of 200k with 10% deposit gets you a monthly payment of £1,168, so you are actually saving £568 a month due to what your dad has done for you.

As others have said, if finding £600 a month is a problem for you then you need to sell that house and give your dad his money back. Although I presume then you will also have to pay rent as you need somewhere to live, which may even be more expensive than the £600 your dad is asking for.

twobluehorses · 15/12/2024 09:03

It’s going to take you almost 30 years to pay him back. He’s done you an absolutely enormous favour and you’re ridiculously ungrateful

Meredusoleil · 15/12/2024 09:04

twobluehorses · 15/12/2024 09:03

It’s going to take you almost 30 years to pay him back. He’s done you an absolutely enormous favour and you’re ridiculously ungrateful

I agree! If I could do the same for my kids when they're older, I would.

HappiestSleeping · 15/12/2024 09:05

You have this the wrong way around @emmalinewre

If your dad gave you £200k, you would have had to have paid tax on it. The fact that it is a loan with a very low repayment actually saved you from paying tax, not him. He is allowed loan repayments free of tax.

Shopgirl1 · 15/12/2024 09:06

Good point above. As you are repaying its a loan. If not for repayments you could be liable for gift tax.

SheilaFentiman · 15/12/2024 09:07

If your dad gave you £200k, you would have had to have paid tax on it.

Errr, that’s a bit oversimplified. If her dad gifted the £200k and had an estate over the IHT threshold and died within 7 years of the gift, then IHT would be due on this part of the estate also. But otherwise, no, not to my knowledge (assuming Op and dad are in England)

ETA link www.gov.uk/inheritance-tax/gifts#:~:text=No%20tax%20is%20due%20on,as%20the%207%20year%20rule.

twobluehorses · 15/12/2024 09:08

Shopgirl1 · 15/12/2024 09:06

Good point above. As you are repaying its a loan. If not for repayments you could be liable for gift tax.

“Gift tax” is not a thing (outside of certain IHT situations)

Christmaseason · 15/12/2024 09:08

Sell your house and pay him back if it’s too much of a burden for you. Then pay a more expensive burden of thousand or whatever to a bank every month for a mortgage.

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