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!

Yes but the 7 year taper rule would not apply because it was never a gift and always a loan.

I honestly don't know why you are bothered by this, op. Most people struggle with repayments for a period of time, that's how it goes, but it doesn't last, we get by and things improve eventually. At least £200,000 of your loan is interest free and that is a great advantage.

Thank you! That was my query! I'm not trying to get out of anything. I was just asking what people thought may be going on.
Mumsnet is such a dumpsterfire of bastards sometimes.

He's a former accountant, and has his own ltd company even though he's retired and hasn't worked for 20 years.. seems dodgy to me.

Yet you willingly accepted the money! 🤷‍♀️

What’s your ideal solution here OP? Do you think the fact that he’s ‘dodgy’ means you shouldn’t have to pay him back?

As pretty much everything in the post you have quoted is incorrect then I wouldn’t pin your hope on that!

In what way dodgy? Have you looked at the accounts on companies house?. Does it still have a positive balance sheet? Are there still retained reserves that he could be extracting over time? Or are you just speculating? I retired a few years ago, but my limited company (used for advisory work) is still active. Occasionally I do a bit of work and invoice through it. Is that dodgy as well?

I love that you’ve only picked up on the post which is almost entirely wrong.

just to clear up one point that appears to cause a lot of confusion: he does not need to pay tax on any repayments of principal that he receives from you. (Interest, yes - but OP has ignored that nobody can help properly without knowing how the loan is structured.)

Even if the payment was for an annuity, only the “interest” equivalent is taxable “Each annuity payment includes a return of part of the sum invested (the capital) plus the part that is interest. You won’t pay income tax on the capital. You‘ll only pay tax on the interest part of your annuity income.”

On the face of what you’ve set out, OP, there doesn’t appear to be anything dodgy going on from a tax pov. If you’re concerned about the source of the money, that is nothing to do with the loan arrangements or the conditions…

assume what you mean by this that even if you sell the house and release enough equity to pay him back, he does not not want a capital repayment - cannot imagine that you'd have agreed that this would be the only house you'd ever buy in the 27 years it will take you to pay it back?

How old is your dad? How do your siblings feel about it all?

Op - speak to your father and really listen to how he explains it. Get him to write it down in bullet points and with diagrams if you are utterly bamboozled, so you can refer back to it one step at a time. It really may be above board. Really listen to his motivations for structuring the loan in this way.

You seem to suggest that as you are already paying a mortgage that it is somehow unfair that you also pay back the £600k pm as well - but you have choosen to buy a home costing £200k more. And his loan is almost certainly a better deal than a mortgage.

There is a lot of the picture missing. What rate is he charging you if any. Whose names are on the Deeds. Why does he want you to keep that specific house - or is that not the case and he just wants £600 pm regardless?

Could it be that his stipulation to keep the £200k in property is because he wants to see you settled in a good property and that money invested in a safe way for your future?

How does he get on with your DH? Does he trust him and your relationship? How much did/does your DH contribute to the house purchase? Because perhaps your Dad would have gifted the lump sum to you, but he is protecting your and your sister's interests incase all goes awry with your respective partners and the assets have to be split 50:50.

Just think, you will only have to repeat this phrase, that you have said at least four times now, another thousands times as people cannot be bothered to read or comprehend the thread.

Let me repeat, for those in the back:

OP CANNOT pay back her father in any way, shape or form! It is in the contract because he wants the monthly income. So, telling the OP that she should, in fact, get another mortgage and pay her father back is pointless and a waste of bandwidth!

Hopefully, that will clear up any confusion.😉

Then why mention that you’re struggling with the payments at all? It’s not relevant if all you’re worried about is the source of the money. And how come you’re only worried about it now rather than when you took it?

The contract may not be enforceable. She's been advised to get legal advice about its content.

Hopefully that clears up your confusion.

Tax avoidance = arranging your affairs to minimise taxes paid. Legal.
Salary sacrifice, pension avcs, even ISA , count as tax avoidance. Many of us on here utilise these vehicles without thinking we are dodgy,

But op, if you do want to remortgage to raise the balance still owing you could. Then put this capital to one side with a standing order to your dad each month. Fulfills your contract to him. You then do not need to think of it again.

it will probably cost you more.

She has mostly been told how lucky she is and asking why she isn't kissing Daddy's feet.

I don't think he's being dodgy, just worked out a way to get income without being taxed on it. As for not being enforceable? Many are not legally. But morally is another story. She can get legal advice and then let her conscience be her guide.

I hope that clears up any confusion for you.

I'm not confused, but thanks!

Legally enforceable is all that counts, frankly.

I’ve read the updates re the “contract” not permitting you to sell the property to repay him the outstanding balance, and the fact you have a mortgage also. I don't see his that could ever be considered legally enforceable - he can’t dictate you hold onto a property when you don’t want it - what if you wished to move? Does he have a legal interest in your property? (presumably if it’s a secured loan your mortgage lender knows about it)?

What would happen for instance if you or your husband suddenly inherited or won enough money to settle your debt - is thiz contract saying you can’t repay early? Is that even legal (probably not as it’s very onerous on you). Also, what does the contract say happens in the event of his death before repayment term is completed? Possible, seeing it’s got years and years to go. Is the money still due to the estate?

You could look at reporting him to HMRC for tax fraud, but this could backfire if he decides the debt suddenly becomes due for full repayment (to cover any arrears of tax!). You need someone professional to look at this contract - sounds distinctly weird.

Only sometimes? When isn't it? Inquiring minds would like to know!

Even in threads with DV and out-and-out spousal hatred, you get the ones who come in to pile on and blame the victim. Or say deep thoughts as, "Well, we have only heard one side of the story." Really Captain Obvious?

I'm sorry you are getting the hot end of the dumpster fire, but that should have been expected.

Get some legal advice about the loan, but realize, it helped you out, or you might still be renting or in a house with much less value.

Surely a clause that you can’t sell isn’t enforceable? What would happen if one of you feel sick or was made redundant meaning you couldn’t cover the mortgage and loan repayments?

When you took your mortgage, what did you declare this loan as? Our mortgage provider were funny about the equity we had when we came to move as some of it was gifted from my partner’s grandparents so we had to prove it was truly a gift (it was). That mortgage was £226k over 25 years pre-Truss and we repay about £1100 a month so I think the deal you have is better than you’ll get with any bank!

The 7yr taper rule only applies if the outstanding loan balance is forgiven starting as of the date the loan is forgiven. So a family loan can become a family gift.

So, when you say the contract says you cannot sell and pay him back; does that mean you can still sell up as long as you continue to pay him the 600/month?

I have a hard time believing it means you are stuck in that one house. That would be a strange "string" to have on a loan.

But it’s not and was never intended to be a gift? So the debt would be owed to the estate.

He must have some income from assets so although he’s retired it doesn’t mean he doesn’t have any business interests. Why are you so suspicious of your father OP?

Yes - you can never move or relocate 🧐