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 the loan is interest free then your dad is actually being incredibly generous. Interest rates are pretty high at the moment so he could have the money in an account paying say 5% and be receiving £10k + a year. By contrast by not paying interest you are saving a fortune. If you are uncomfortable owing your dad money then remortgage the house for the outstanding amount and repay him but it will probably cost you more. Presumably he refers to the loan repayments as "income" because he relies on them to live on. If he hadn't lent you the money then he could have invested it to generate an income or purchased an annuity.

As an aside what happens when he dies? Does the loan get written off or do you have to repay the outstanding balance immediately to the estate? If the latter then you might want to consider taking out life insurance on his life so that you have funds available and aren't forced to sell or remortgage when the market may not be favourable.

Paying him back each month is a burden? What would a mortgage/rent be then?

He didn't gift the money though and OP knew it wasn't a gift.

Yes I know!! I was responding to a poster who said that the tax position was better for OP if it was a loan than if it was a gift.

I bolded the sentence I was responding to, in line with MN convention.

It's still irrelevant to discuss if it had been a gift, because it wasn't.

In your opinion of “relevance”

I was correcting a misunderstanding from another poster about how the tax works on gifts vs loans. Perfectly reasonable use of the forum.

In the general meaning of relevance.
Anyway, moving on.
OP needs a reality check of how fortunate she is, in financial terms at least.

Paying him back is a burden? You honestly disgust me - you have not appreciated this act of kindness and generosity and you certainly don’t deserve it

If you don’t like paying £600 each month sell up and pay him back

Wtf you feel locked in because you didn’t get your house for free? Well sell it then and get a mortgage with 5% interest which will probably be more than 600 per month in repayments.

No he’s not profiting and you sound extremely ungrateful.

Responding to a poster on something they have misunderstood is a very common thing to do on internet fora. HTH.

You have a nice day now, sweetie.

How ungrateful. Sell it and hand it back if you feel so ‘locked in’

Good luck renting a house or getting a mortgage for less than £600 a month

Pay out 200k in monthly payments and stop. Be grateful to your father for the opportunity on an interest free loan.

Your father's finances are none of your business.

So ungrateful

What would be your preferred outcome op? He’s not making any money from giving you £200k clearly because it doesn’t sound like you’re paying interest, you’re simply returning his own money to him.

Do you believe you’re paying more for your mortgage than you would a bank? Could you get a better property either renting or buying for less money?

Im trying to imagine a scenario where you’re thinking anything other than your dad should just have given you £200k. Do you think that?

You won’t find 200k with a repayment of £600 pcm anywhere else but presumably you’re free too and can pay him back?

You need to look at it differently OP. You're getting a house for 600 quid a month, I'm assuming that's fixed and you're not at the mercy of the bank? Where did you live before and how much was that?

You could sell up and repay your dad. Go back to what you were doing before

I'd have wanted to know was this an interest free loan -so you pay £600 per month and it's paid off in 30 years?

Or is it a loan with interest of £600pm so you still owe him £200k and it will need repaying out of his estate (not huge issue if just 2 kids and both had sane deal)

So legally it needs to be clear for anyone doing his probate.

Such a joke “a lot of money to find every month”. Wow I wonder how other people manage to pay for their housing. Oh yeah, most of them are paying twice the pitiful amount you and your partner struggle to find every month and it’s either rent (so no return) or most of it’s interest to the bank. In ten years time your 200k house will probably be worth 300k and you haven’t been paying tens of thousands in interest either.

Do you understand the phrase 'moving on?'.
🫣🫣🫣🫣

I would sell the house and return his 200K. Then I would just find a rental for £600 a month.

Simple.

Good luck.😁

However, it has become rather a burden as that is a lot of money a month to find

Surely this isn't the case when you compare it to what you would otherwise be paying though?

Unless you overstretched yourselves - did you get the same size mortgage you would have got without this money then added this money on to get a bigger house than you would otherwise have been able to afford? So you're paying the mortgage you would have been paying anyway, plus £600? In which case, silly you.

Mmmm… but you aren’t the boss of me. Unless you are a 50 something guy with a nice line in waistcoats? In which case: Hi Dave, can you sign the document I sent last week? Thanks everso.

I can choose whether I respond to you, you can choose whether you respond to me. Isn’t free speech grand?

You've got a cheap interest free loan. You have an issue with it!

You are the height of ungratefulness!!

£600 is nothing, if I was your dad I’d be kicking you out and selling the property. You need a reality check!!!

The cheek of you!!

Seriously dude, going back to bed for an hour can put you in a much better mood.