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!

If she said it was a gift he would have had to sign he didn’t want the money back

If it was said it was a loan, the contract has so many holes in it that any mortgage company solicitor would see it wasn’t enforceable and would want clarification

If she said she had saved it she would need proof

Just to throw a wild idea into the mix - the OP could maybe have asked? You know, before agreeing to the loan and buying the property, rather than questioning it once she doesn’t fancy paying the loan back on terms to which she happily agreed?

If you’re old enough and responsible enough to buy a house, you should have the sense to ask these questions.

So why did you get involved?? Also the poster giving advice (purely because they may know about something), totally misses the point that they are advising you seek legal advice relating to the actions of your father - which you have willingly participated in. With the confirmation here memorialised that you had any suspicion, you could actually be deemed complicit. I’d tread carefully if you’re going to start throwing accusations - and not worry too much about losing the relationship with your father.

OP could have asked questions and, as she was too skint to pay for any additional work from her solicitor, used a credit card to pay, given how the money she's been loaned is from someone "a bit dodgy". So, a pretty serious situation all round.

I wish people would stop giving incorrect advice. It is NOT a criminal offence to avoid paying tax. To evade paying tax is. There is a difference.

Friends of ours gifted six figures to their DC towards a house purchase. Both the estate agents and the solicitors sent them similar form letters to fill in with multiple clauses saying "I understand this is a gift. I understand I will not get the money back. I understand there will be no repayment. I understand I am not getting any equity". There was no certainly no possibility of any ambiguity!

Whether any given scheme is tax avoidance or tax evasion is not determined by the words that the people doing it choose to use to describe it.

Tax evasion is not just working cash in hand. HMRC has the power to look at a tax avoidance situation and say "you're taking the piss here" and fine you. You can appeal, but it will certainly ruin your day.

Currently we have no concrete evidence that OP's Dad did anything wrong, either in acquiring the money or in making the "loan" or whatever the contract is. But presumably OP has suspicions if she's prepared to write such a borderline-outing post in a public forum.

That happened when we gifted both our sons mortgage money the first time. The second time we went for loans post mortgage approval for all the costs of moving stamp duty Etc

On the plus side if OP did commit mortgage fraud and got her dad to sign a document like this, it might be possible to get this document upheld and being more valid in law than the "i can never stop paying" contract?

Sounds like you are looking for ways/reasons to bump him. You are amazingly lucky to have been given this opportunity to get on the property ladder which you obviously do not appreciate. His personal tax position is nothing at all to do with you. You are paying a very low rate of interest without any capitol repayment. Total shame on you. You do not deserve such generosity.

This is my response too.

Yes indeed...hopefully?! 🙄
However, you might find that whatever you do you will be paying out a lot more than £600 a month which in the scheme of things property wise (mortgage or rental) doesn't actually sound OTT these days?! 🙁
Maybe shut up, put up and look on the positive side unless of course you really can't afford to pay the £600 then you have no other recourse than to sell up or if possible, try and renegotiate with your Father to a sum you can afford? 😣

I’m sure finding some spurious reason to have your dad locked up will make this all go away.

He already paid the tax. You are losing him savings interest. If anything he is worse off than if he hadn’t helped ypu

Goodluck finding rent or a mortgage for less than £600pm, I’d love to be owning a house for only £600pm with no interest, I’m not sure what you’re complaining about.

People that I know have to rent a small home at twice that cost per month and have no chance of saving a deposit because of the rent. Your dad did not GIVE you money. He gave you a loan. IF you had a Council House you would be paying about £149 a week so count your blessings that he helped you. You could always sell your house and get a mortgage from a bank on another one, like most folk have to.

Gifts and loans like this can cause some issues down the line if the person providing the loan/gift dies within seven years of making the gift/loan. That's why it's important to seek financial advice - including advice about wills, trusts and estate management - when dealing with large sums such as this.
As for whether it's technically tax avoidance (e.g. some roundabout way to avoid the tax payable on interest), it'll very much depend on how it was set up and what you have in writing. However, that's something for him to worry about.
For his other accounts, there's no reason why one can't have accounts overseas; their mere existence isn't dodgy at all. Again that's for him to worry about.
In your shoes I'd be extremely grateful that someone had loaned/gifted me such a generous amount. So long as you've got the arrangement in writing and drawn up by a solicitor that makes the set up crystal clear then the rest is not your concern.

You sound....ungrateful?
Not sure why when so many young people would bite their parent's hand off for such an arrangement?

In the contract? But if you sell the house and pay him back the contract is finished.

He would be losing interst income on the £200k. So I see it as doing you a favour you would be paying way more on a mortgage for that amount and tons of interest.

Sorry - the advice you have been given is nonsense. It is a loan.This means that if you haven't repaid the loan by the time he dies, the balance due by you (and indeed any balances due by your siblings) to him will be firmly IN your dads estate and therefore subject to Inheritance tax if he has a deemed in the UK. Even if it is deemed to be a gift, it will likely be classed as a gift with reservation due to the monthly repayment so will still be in his estate for IHT. That in itself poses a bigger problem for you and your siblings as to how to fund the IHT due on the remaining balances if there are insufficient other assets in the estate to meet any such liability. If you cannot manage the £600 per month, sell the house and move elsewhere. And yes, I have read that you cannot give it back all at once so don't. Stick the balance due to him in an account and set up a standing order for £600 a month. Also means you have the money to pay any IHT on his death and the money to repay the estate the balance of the loan if you are not a beneficiary (since you said you wouldnt get an Inheritance). Problem solved. It cannot surely be the case that you have signed a contract which binds you to that house forever. It sounds like you need to worry less about whether your father is doing some tax dodge (which doesn't sound like it to me based on what you have said - for income tax purpose, while he might treat it as monthly income, it is in fact capital and therefore not subject to income tax unless you are paying him any elementof interest) and worry more about why your finances are leaving you so stretched and resolve that issue. This is unfortunately a hard lesson in not blindly entering into something you do not understand.

Wow! Can we swap 😂 have you heard about how much mortgages have increased over the last few years. I feel financially trapped by my mortgage lender ha ha You are extremely lucky. You would struggle to rent or buy for less than that in most places. I think you should be thanking him.

Surely if he lent you the cash and is asking you to pay it back it has NOT been given to you and is not outside his estate. It is a loan which needs to be repaid. If he died before you'd paid it all back the outstanding balance would still be part of his estate and would be liable to IHT. It would be different if he had actually given it to you and it belonged to you outright, after 7 years it would not be in his estate.

That…

look at how much you should repay in mortgage and thank your dad!

200k by £600 a month means he would have to be around for about 27 years from the day of purchase. It's a risky investment for him and quite beneficial for you (assuming that the property is in your sole name indeed, not in trust etc) - so there's no interest, no remortgaging fees, no solicitor fees, not to mention the time and stress related to mortgages. So unless there's something else going on you're being unreasonable.