Active discussions

Meet the Other Phone. A phone that grows with your child.

Meet the Other Phone.
A phone that grows with your child.

Buy now

Please or to access all these features

Talk
Property/DIY

Join our Property forum for renovation, DIY, and house selling advice.

Original poster

Tax avoidance? Parent buying house for child on loan.

454 replies

emmalinewre · 15/12/2024 08:48

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!

OP posts:
EvangelicalAboutButteredToast · 15/12/2024 11:42

You need legal advice. The contract sounds dodgy if you can’t relinquish yourself from this loan. It’s like you’ve entered into a time share or something.

CappuccinoChocolate · 15/12/2024 11:43

I would get legal advice check with your employer/union ypu can often get a free /reduced session! Could you possibly sell and offer him the money when he refuses (document?) put all the money in an account that pays him monthly? There can't be anything that says you CANT actually sell in the contract if he doesn't own the house himself surely.

Cantrushart · 15/12/2024 11:43

My (admittedly basic) understanding is:

1- He would have to pay tax on any capital gains from investments. He is avoiding this. He has also guaranteed a regular income regardless of market conditions, though this will devalue with inflation.

2- For a gift to be exempt from inheritance tax, the giver cannot receive any material benefit from the gift, eg continue to live in a gifted property, or charge interest on a gift/loan. The 200k will incur IT, but that's your problem, not his.

Spottyness · 15/12/2024 11:44

emmalinewre · 15/12/2024 10:33

He wont let us sell it - its in the contract he wants the money every month. We have a mortgage on it as well.

Show quote history

lol that is completely unenforceable. Sell the house and pay him back the remaining money, then get a smaller house and just have your mortgage. Simple

TorroFerney · 15/12/2024 11:45

That’s not watertight, if you gave him the balance what could he do/what recourse would he have? Had he a charge on your house? You can’t refuse to let someone settle a loan.

Another2Cats · 15/12/2024 11:47

Tryingtokeepgoing · 15/12/2024 11:00

There’s no tax payable on a £200k gift by either the recipient or the donor. If, and it doesn’t seem to be relevant in this case, the donor dies within 7 years then their estate will have an IHT charge on a tapering basis, but that’s not the problem of the recipient.

Show quote history

Just going off the point a bit here, but the OP said that her sibling also got £200k, making a total of £400k.

In that situation, if the father dies within seven years then the sibling that got their money last (or both of them if they got the money on the same day) is primarily liable for IHT on £75k (£400k - £325k).

It is only the first £325k of failed gifts that are disregarded.

This is due to Sections 199 and 204(8), Inheritance Tax Act 1984. The estate also becomes jointly responsible if the tax is unpaid after 12 months.

Highlandfandango · 15/12/2024 11:47

I‘m a solicitor and I’m trying to get my head around how this arrangement has been documented. Is it an unsecured loan that is being reduced in size with each payment (principal plus interest or just principal) or are you paying interest only? Or was it a gift but separately you’re obligated to pay £600/m in consideration. What is the term of the arrangement? There must be an end date. It’s not illegal per se to give or loan people money and then have conditions in return. I have so many questions…

WinterBird24 · 15/12/2024 11:47

Spottyness · 15/12/2024 11:44

lol that is completely unenforceable. Sell the house and pay him back the remaining money, then get a smaller house and just have your mortgage. Simple

Show quote history

OP doesn’t want to repay she wants it as an outright gift. Or atleast that’s the impression I get.

WinterBird24 · 15/12/2024 11:48

Highlandfandango · 15/12/2024 11:47

I‘m a solicitor and I’m trying to get my head around how this arrangement has been documented. Is it an unsecured loan that is being reduced in size with each payment (principal plus interest or just principal) or are you paying interest only? Or was it a gift but separately you’re obligated to pay £600/m in consideration. What is the term of the arrangement? There must be an end date. It’s not illegal per se to give or loan people money and then have conditions in return. I have so many questions…

And apparently he can prevent a sale of the property but this was also acceptable to a lender…

NoWordForFluffy · 15/12/2024 11:48

WinterBird24 · 15/12/2024 11:47

OP doesn’t want to repay she wants it as an outright gift. Or atleast that’s the impression I get.

Show quote history

Me too!

Spottyness · 15/12/2024 11:48

WinterBird24 · 15/12/2024 11:47

OP doesn’t want to repay she wants it as an outright gift. Or atleast that’s the impression I get.

Show quote history

Agreed. OP doesn't realise how lucky she is to get an interest free 200k loan!

woffley · 15/12/2024 11:48

emmalinewre · 15/12/2024 10:29

We already have a mortgage on the house aswell and it says in his contract we can't sell and pay him back - he wants the money each month.

Show quote history

I'm quite surprised that a mortgage lender would lend on a property that has such a claim attached. Normally they won't lend if there is already a loan on a property.

Spottyness · 15/12/2024 11:50

woffley · 15/12/2024 11:48

I'm quite surprised that a mortgage lender would lend on a property that has such a claim attached. Normally they won't lend if there is already a loan on a property.

Show quote history

Sounds like they told the lender that the 200k was a gift. I think the OP should worry about potential mortgage fraud rather then her dad's tax situation

Radionowhere · 15/12/2024 11:52

How did he come by the money OP? Could be money laundering. The fact that you have no get out is very controlling.

Allthehorsesintheworld · 15/12/2024 11:53

emmalinewre · 15/12/2024 10:29

We already have a mortgage on the house aswell and it says in his contract we can't sell and pay him back - he wants the money each month.

Show quote history

That is odd. Is he controlling in other ways?
I think you need legal advice on this contract.

Bowies · 15/12/2024 11:54

As you have signed a contract but changed your minds it seems you will need to find money to pay the solicitor to look into the legality of the contact and get you out of it.

Given how you’ve described him I can understand wanting to distance yourself from any financial arrangement and go LC or NC.

aodirjjd · 15/12/2024 11:54

There’s no way he can stop you selling the house. The contract might stipulate that you can’t repay his loan early but then all you need to do is put sales proceeds in a seperate account and set up a standing order of £600pm until it’s run down or he dies. That means if you do get an IHT bill you’ve got the cash ready.

Flossflower · 15/12/2024 11:55

I think I would get the contract looked at by a solicitor if you want to sell the house and pay him back. If he won’t let you do this then he is not a great father and I would clearly question what his motives are.
We have been in the fortunate position of being able to help out children out. Nothing has come with strings attached.

JingleB · 15/12/2024 11:55

Your father gave you an interest free loan of £200K so you could buy a much larger property than by mortgage alone, and you think he’s the unreasonable one?

If you can’t afford your repayments you need a different job or to attempt to refinance your mortgage over a longer term. £600pm isn’t at all bad for a £200K loan.

LBFseBrom · 15/12/2024 11:57

£600 a month doesn't seem to bad to me for £200,000. It's a mortgage after all. People pay much more than that in rent, never mind owning a house. It's generous. Why care about your dad's tax affairs, it's his business.

redalex261 · 15/12/2024 11:58

What do you want him to do - write the money off? It's a loan with no interest, a fantastic deal for you.

Why don't you and your husband calculate how much you've paid back of this loan and the outstanding balance. Also, how quickly you will pay it off (less than 21 years). Then look at what the capital o/s on a 200k mortgage with £800 paid towards the interest and capital. You would be less happy to be in this arrangement.

His tax affairs are his own,

BrightonFrock · 15/12/2024 11:59

emmalinewre · 15/12/2024 10:28

He won't let us. Its in the contract we can't do that. We also have a mortgage.

Show quote history

So sell and buy somewhere cheaper. Reduce your mortgage and the £600 won’t be such a burden.

MoreHairyThanScary · 15/12/2024 11:59

If it's a c tract there must be terms for ending it...

Ask a solicitor to review it and see what your options are to break it.

BrightonFrock · 15/12/2024 12:01

emmalinewre · 15/12/2024 10:31

We already have a mortgage on the house aswell and it says in his contract we can't sell and pay him back - he wants the money each month. I won't be getting any inheritance. I saw a solicitor at the beginning of all this and they said it all looked really suspicious but I couldn't afford to engage them to look into it.

Show quote history

“But I did it anyway”.

You didn’t give two hoots about it being suspicious or your dad being dodgy when you took the money. Your conscience over potential tax avoidance has only kicked in now that you’re struggling to pay it back. Funny that.

Christmaseason · 15/12/2024 12:05

Are you thinking it’s a money laundering thing?

Swipe left for the next trending thread