Tax avoidance? Parent buying house for child on loan.

[emmalinewre]

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!

Speak to a solicitor. It is highly unlikely that he can stop you selling a house that is in your name.

If the house works for you otherwise and you can afford it, just crack on and ignore whatever he is up to.

Conveyancer here. It is very unusual for a mortgage lender to agree for a family member to loan the balance payment. If it is a standard lender it’s likely your dad signed a legal letter confirming the mo eh is a gift and not repayable…

You’re being a CF and ungrateful

You would be paying a lot more than £600 in rent or a mortgage with the interest rates they are ATM. £600 a month isn't that much in comparison.

Sorry, but I am looking at the whole picture. I was only addressing the comment
Why are none of you querying why he wanted to shift a large sum to his kids?

Many people try and DIY contracts and ignorant of what they can and cannot do put in unenforceable terms. Heck, even trained professionals will accidentally put unenforceable terms into contracts. In turn, people often misunderstand a contract’s terms and think it prevents them from x, y, and z when it doesn’t.

It’s more likely to be a mixture of a poorly written DIY contract and misunderstandings than a diabolical iron clad tax dodge.

There are strings- he's calling it his income. It's not, so that's not truthful.
It is a type of income. That is truthful. Principle repayments are nontaxable income, while any interest OP is paying in her repayments is taxable interest income.

It’s not an IHT dodge, because according to HMRC, if he dies before it is paid off, the outstanding loan is still part of his estate for IHT calculations although the limit is the original loan amount (really only helps if interest is being charged). The rules for family loans are not the same as a commercial loan.

He won't allow it to be repaid as a lump sum.
Ok? This sounds a bit self sacrificing, a lump sum could be spent on an annuity that pays more than the monthly OP is resentfully paying him.

I'm surprised anyone gave you mortgage in this set up.

But... having read posts on MN about lending DC money for house deposits it's not the done thing so may be alien to some.

why did you need to have a mortgage on your house as well?

Sell the house, pay him back £600 a month as per the contract ad infinitum.

The contract shouldn’t prevent you from selling. The contract should be regarding the terms of the loan. You’re conflating the two but they can be separated.

What do you mean 'he won't let us sell it'...

Is it your house, ie. you're on the deeds, he is not on the deeds. You own the house, and you paid for it with a combination of his 200K and a mortgage...

Or is it in fact his house, you're not on the deeds, he is, you can't sell it.

You can't write ridiculously unfair contracts and thats pretty universal, I cannot imagine that a contract that states 'you can't sell your own property' will not be considered fair anywhere.

it’s impossible for anyone to say what’s going on because you haven’t given enough information. But if the house is in your name, if the mortgage is secured on the house and is also in your name, and if your dad has no lien or secured interest on the house, he can’t stop you from selling it.

He’s basically rid himself of a 400 grand lump sum (probably to avoid paying tax on it) by giving it to you, but wants it back in a tax free way (who knows how, he’s probably either not declaring it or has arranged his affairs to make use of allowances) over the rest of his lifetime. He’s using you and if you don’t do what he’s set up, he’s going to be in trouble. He’s not controlling you so much as using you - it feels like control because of his tight grip on this situation which he needs for his own benefit. Nothing to do with you.

I really wouldn’t want to be involved in this. If he gets found out he’ll have dragged you into his mess and you’ll all be in trouble. I feel especially for your and your sibling’s spouses. Not even their dad.

Yes, in MN posts usually house deposits are a gift in lieu of paying Uni costs.
But it can be done although usually you’d need a mortgage broker to find you a willing bank.

What do you mean?

It's quite common to pay uni costs and also give a house deposit amongst my social circle. No brokers needed. Children arrange their own mortgage and parents provide a deposit with proof for the solicitor that it's not 'illegal' money.

That’s unenforceable. You can sell it and pay it back to him. He can’t stop you.

He’s basically rid himself of a 400 grand lump sum (probably to avoid paying tax on it) by giving it to you, but wants it back in a tax free way (who knows how, he’s probably either not declaring it or has arranged his affairs to make use of allowances) over the rest of his lifetime. He’s using you and if you don’t do what he’s set up, he’s going to be in trouble. He’s not controlling you so much as using you - it feels like control because of his tight grip on this situation which he needs for his own benefit.

This is exactly what I posted @Onlyonekenobe

If he has investments offshore in the UAE it's possible that money is under the radar as far as HMRC are concerned.

But it IS control because OP isn't allowed to repay the lump sum.

@Startinganew32 OP could sell it but would be within breach of the contract with him.
How legal that contract is , no one here knows. Needs a legal bod to look at it.

If he took OP to court for breaking the contract it would be very expensive and might open him to all kinds of interest from HMRC.

So I think, on balance, it's bluff.

But it's not a gift is it?
It's a loan.

Hence why I said “lending or giving”.

Have you spoken with your father about the financial pressure you're under?

Some vital information is missing here.

Is the £600 actually a repayment i.e. is the debt dischared when you have made payments totalling £200,000 plus interest? What is the interest rate? Who is responsible for keeping track of the outstanding balance?

Or, does this contract stipulate that the £600 is to be paid in perpetuity (until his death?) i.e. it is in fact totally separate to the loan?

If the former, then then assuming the interest rate is competitive then I'd say in principle it seems reasonable, although the clause about not being able to repay the loan sounds very odd and unreasonable.

If the latter then your dad has potentially stitched you up.

She is allowed, if the house is in her name. He can’t stop her. Any contract purporting to stop her would be unenforceable.

If the house isn’t in her name (but she’s paying off the mortgage) she’s got bigger problems. If he has security over the house for this loan she can still sell the house and pay off the mortgage first and him second (that’s all the mortgage lender would have agreed to).

What are you trying to get from this thread op?

If you want to sell your house and need to know if the contract is enforceable, no one here can answer that.

If you want people to validate your feeling that you're being used, what difference will it make?

Essentially, you have done what many, many others do / you've taken on debt you're struggling to service. Regardless of why your dad has done this, it sounds like he was clear with the terms upfront so the fact you're now struggling is on you.

Precisely.

OP’s concerns re: tax avoidance seem to have kicked in just as she realised she’d overstretched herself on the loan and mortgage payments combo. What amazing timing!

I’m sorry but why are his tax affairs anything to do with you? He made you an amazing offer. You took it. You knew the terms. You are paying him back. You feel “locked in”?! To what exactly!! Sounds like you think you were entitled to the money freely given - which you weren’t. Suck it up, or get a loan and pay him back. Your loan by the way, will be way more expensive.

What is the actual issue?

You can't fork out £600pm and basically don't want to give anything.

Are you actually kidding???

2 adults and you can't earn £600pm. I bet your husband didn't tell you that before he accepted it. You basically want your dad to say you owe nothing so are finding flaws in him so not having to pay. Very ungrateful and narcissistic. Urgh.

Greed. People always want more.

“He’s basically rid himself of a 400 grand lump sum (probably to avoid paying tax on it) by giving it to you, but wants it back in a tax free way (who knows how, he’s probably either not declaring it or has arranged his affairs to make use of allowances) over the rest of his lifetime. He’s using you and if you don’t do what he’s set up, he’s going to be in trouble. He’s not controlling you so much as using you - it feels like control because of his tight grip on this situation which he needs for his own benefit. Nothing to do with you.”

OP is benefitting way more than he is. She gets the leverage of the lump sum invested in a more expensive property and gets to keep 100% of the increase in equity. Her dad is getting zero return on his funds presuming it’s a zero interest loan on the basis that OP hasn’t mentioned interest and given she thinks she is being taken advantage of she most probably would have mentioned interest as an issue if he were charging any.