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!

I've known four dodgy accountants locally. Two went to prison, one got away with it. One died.

My son is dealing with one I've advised to invoice monthly if he gets in arrears stop the job. He's even screwed over his wife's family.

@emmalinewre is right to be concerned.

I’ve already said this once, but it keeps coming up. I don’t think the OP is saying the contract says she can’t sell at all - just that she can’t sell to repay the loan in full instead of continuing with the instalments. This was what she posted:

it says in his contract we can't sell and pay him back - he wants the money each month.

OK but it was a bit of a drip feed ! The OP looked like a simple loan arrangement to be paid back with some questions over UAE bank account.
Edited as seems like the repayment is not linked to house:
Now it seems like a ridiculously restrictive contract whereby you can't repay the loan.
Either way he's probably getting some benefit from the loan, depending on his wider financial arrangements. Although not sure why that matters particularly. I'd be more bothered about this unreasonable restriction on repayment. What if you got a lottery win ?!

Loads of self employed people keep their limited company going - that is really not a red flag for dodgy-ness - why do you think it is?

Op, people can have about ten different bank accounts for legitimate reasons. Eg if they have ever worked and lived in different locations. Historically you can accumulate them for better rates etc And/or if you hold money with a UK-authorised bank, building society or credit union that fails, the Gov automatically compensates up to £85,000 per eligible person, per bank, building society or credit union, so it could be that he is spreading his savings around for maximum protection.

You mention your DH. What are his thoughts?

If you are struggling, but like the place you live and are relatively young, potentially you could extend the mortgage term a bit and it would ease things for you. Keep reviewing your mortgage... There may come a time when it is more affordable to switch to a better deal.

£400K is a hell of a lot of money for one person to acquire - do you know how this happened? Avoidance of CGT was my immediate thought - has he sold a property or several recently? I note you said you won’t be getting an inheritance, which makes me think he’s in rented accommodation.

Also hopefully he was in good physical health when he loaned you the money because if wasn’t and he needs care, his local authority will be going after you and your sibling, if his money runs out.

CGT would be due as a consequence of the sale, irrespective of what you do with the proceeds. So why would that be a rational explanation. OP was presumably free not to accept, nor benefit from the money.

OP CANNOT pay back her father in any way, shape or form!

You really are very mistaken about this.

You appear to be assuming here that the OP cannot choose to just stop paying the £600 per month. She certainly can.

Alternatively, the OP might sell the home and downsize but carry on paying the £600 per month.

If the father were to claim against the daughter for breach of contract then the court would look to put the father in the same position as if there had been no breach of contract.

If she has stopped paying him then she would be required to pay him the outstanding amount. If she had sold the house but was still paying him the £600 per month then, at the very most, the court might order that the loan is repaid immediately as there is no longer any security for the loan.

£400K is a hell of a lot of money for one person to acquire - do you know how this happened?

My dad had a business that he sold for £1.2 million. Nothing dodgy about it.

A retired accountant saving £400k over their lifetime is hardly dodgy money territory.

how is £400k dodgy FGS? Lots of people have savings of that and more.

do you not get on with your father? When he is dead you might just feel the loss... in the meantime his tax arrangements are his business, not yours.

so 200k repayable at 600/mth equates to a repayment period of 333.333 months or 27 years 9 months and approx 10 days.
As it is not a round sum number of months we cannot say either way whether there is, or is not, interest being charged, but it certainly is a not a harsh payment rate per month. If you are struggling to find £600 a month then it suggests you are living beyond your means.

Yes one can get 30 year mortgages, but as you have not given your age we don't know if you'd qualify for one as a comparison to your 27 year loan and a commercial mortgage repayment (including interest) could cost you around £900 - £1k per month at a nominal 4% interest.

Will your father still be alive in 27 years time? On the face of it he has made a loan which is demonstrably being repaid (interest element unknown) so no "income" tax implications for him (or you). Crucially it depends on what his will says about what happens to the outstanding balance at his death:

• will it be a lump sum you have to repay? In which case there is no tax implication on you as it just gets added back into the value of his estate (which may then push the estate over the IHT threshold, or not)
• or will it be written off? ie treated as a gift to you under the inheritance tax 7 year rule, in which case if more than 7 years between date of original 200k gift and date of death then there is no tax implication on it.

Without knowledge of the interest position then him calling it "income" sounds to me a fairly typical way of someone rationalising living off a fixed sum of monthly money that is in reality from a diminishing lump sum in the bank rather than living off a genuine income/pension.

Given that his daughter described father as “a bit dodgy” I think it’s possible that the £400K may also be.

are you suggesting that OP's father is a criminal who is laundering his money by making a private loan and receiving clean" repayments?
Any other speculations you care to indulge in? Is he really the father?

I’m suggesting that the OP should get herself to a solicitor asap.

Wise words.

No one can be complicit if they don't know the facts.

How can you possibly think your 'argument' stacks up?

Yes that is what is being suggested. It's a criminal offence to avoid paying tax. Having several accounts offshore incl UAE, handing over £400K as a loan but refusing to have to paid back in a lump sum [which would leave a paper trail] certainly raises eyebrows.

Her solicitor told her it didn't look right (allegedly) but she still signed it because getting the money was clearly more important!

Ignorance is no defence in law! Not sure why you're so keen to keep defending the OP. My argument is sound. Yours, not so much!

Without knowledge of the interest position then him calling it "income" sounds to me a fairly typical way of someone rationalising living off a fixed sum of monthly money that is in reality from a diminishing lump sum in the bank rather than living off a genuine income/pension.

This makes no sense at all.
If he carries on accepting £600 a month for 30-odd years, that is not going to be worth £600 in today's value.

There are far better ways of investing £400K than relying on £600 x 2 a month, eaten away by inflation.

If he's classing it as income for tax purposes that doesn't wash because a loan to a family member and repayment is not income.

It seems very clear to me that he's trying to keep some of his income under the HMRC radar and giving a gift, then asking for repayments each month is the plan.

Plus there's the very likely occurrence of mortgage fraud on OP's part. She's in it up to her neck!

IANAL but I suspect a contract that states the OP cannot sell the property to release the money to pay off the loan to her father is an unfair and unenforceable contract term. If the OP owns the house she can sell it.

Also I assume this is a private family laon rather than a commercial loan (unless the OPs dad is an FCA regulated credit provider) so how is he going to legally enforce this "contract"?

And what loss would he have to sue for in case of breach, if he's been paid back (or is still getting the £600pcm which I believe is actually the issue)?

If the house is in your name, then there is nothing he can do to stop you selling it and giving him the money back. However, you would be in a worse financial position that you are now as you’d be about £200k down on the money you'd have to buy another house.
Your DF has done you a massive favour - in fact, for him hes much worse off that £200k as hes missing out on the interest that amount would get if invested.

I suspect that the dad came up with this contract and put in exactly what he wanted
He didn’t think about other things happening or what ifs which this contract doesn’t cover

This contract if it was taken to a solicitor they would say it’s completely unenforceable

For someone who is supposedly an accountant they don’t seem to be able to understand basic contract law or how tax works in this country

Just an observation

This is the 2nd thread I have been on in the last couple of weeks where rich parents have come from abroad and “gifted” their children houses to avoid IHT but also want the money back

And appear to have got their knowledge on UK taxation from someone down the pub

Can I ask why these parents want to come here if they are unwilling to pay the taxes we have
Something slightly arrogant about how both these sets of parents have tried to avoid paying tax

Also how did the father in this case prove where his £200,000 gift with strings attached came from

Also how did the father in this case prove where his £200,000 gift with strings attached came from

He wouldn't have had to prove anything, surely? It's OP who would have had to provide verification of the £200K working with her solicitor when she bought she bought the house.