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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:
Schoolchoicesucks · 15/12/2024 12:37

What did the conveyancing solicitor say about the £200k when you bought the house? Does your dad have a charge on the house or does he own a proportion of it?

If you are struggling to pay both the mortgage and the loan, you need to sell up and downsize. If you can't repay him the lump sum because of the contract you signed, then the £200k needs to go in an interest bearing account and you transfer him £600 a month from that.

His tax affairs are not really your concern and have no bearing on your payments.

LoremIpsumCici · 15/12/2024 12:37

If he wants the £600 a month (£7,200/yr) why not sell, take £100k or so of it and buy him an annuity?

to be fair, his £200k pot would have bought him a lifetime, inflation protected single life annuity for at least £1,000/mo

The attached image shows the annuity that a 65yr old can buy with £100k
https://www.which.co.uk/money/pensions-and-retirement/options-for-cashing-in-your-pensions/annuities/annuity-rates-aQGfH6W5n2rm

Tax avoidance? Parent buying house for child on loan.
Applesandcream · 15/12/2024 12:40

Could he be doing it to save inheritance tax? - ie give you £200k to put it outside his estate for iht. Then you pay him an income so he doesn't lose out.

It sounds like a dodgy tax avoidance scheme that will probably fail because he is still benefitting from the gift.

BrightonFrock · 15/12/2024 12:43

ribiera · 15/12/2024 10:48

OP you're getting a lot of flak on this, and I don't think people are fully answering your question.
What your dad is doing is tax avoidance at best.
£200k to you means it's outside of his estate, wouldn't be taken into account for IHT, can't be taken into account for any means tested benefits (eg fuel allowance), won't count if he needs to go into a home.
You're then paying it back at £600 per month. Your dad is smart, there is an IHT exemption for any level of gift as long as it's regular income and as long as it doesn't affect your standard of living significantly. So, the repayments are tax free for him - it's not income in the sense that it's income tax. And as a regular gift from you it's exempt from inheritance tax.
If he took that £400k for example and annuitised it or put it in another pension ... any income he drew would be subject to income tax.
If he placed it in a savings account or isa and free from it it would count as part of his estate on death for IhT; or be taken into account for any care fees.
So essentially he's using you to confer a tax benefit and reviving £1,200 in legitimate tax free money.
Which isn't illegal... it's borderline. And also he should have fessed up and told you in advance.
Presumably you're getting a good deal too - Ie paying less than you would for a £200k mortgage?
Here's the thing - the fact that a solicitor looked at it and said it was dodgy, probably means it's avoidance. Which may mean if you want to stop paying, or just pay back the whole thing you could do. Because your dad can't make you sign a contract for something illegal and then take you to court, can he? Get proper legal advice.

I don’t understand why you think avoiding inheritance tax is such a boon for OP’s father. It’s not like he’ll be the one paying it! If anything it’s a benefit for OP and her siblings!

Stomachbiggerthantits · 15/12/2024 12:45

TBH the simplest solution is to sell your house, return the money to him and breach your contract.

The possible impact of this could be him removing you from his will or pursuing you for breach of contract - which if he is possibly using this as a tax dodge is unlikely.

Or you suck it up, but please do look into what would happen if he passes, you haven’t paid him back and he leaves the interest if your property to someone else.

VWT5 · 15/12/2024 12:45

So you are paying say £7,200 pa.
Repayments of the loan…
After you have made 30 years payment at this rate - then yes you would then be justified to try and renegotiate at that point - also allowing something for interest for your father…

SamPoodle123 · 15/12/2024 12:47

Wow, I can not believe you are being so ungrateful and complaining. That is a lot of money your dad loaned you and your brother. He could have made a lot more making investments and would make a few thousand a year just on interest alone if he left it in the bank......im shocked you are whining about repaying 600 a month!!! So many pay thousands a month to rent a house...which is basically like throwing away money. At least you have a house in your name in the end.

Figgygal · 15/12/2024 12:49

Sounds like you massively overstretched then if your struggling to pay that and the mortgage.
There's some really good advice on this thread. It is not an unusual arrangement my parents did same for my brother tbh

Nanalisa60 · 15/12/2024 12:52

Sell the house give your dad back the 200k minus what you have already paid him, Then go out to the real world get a mortgage. Your Dad has been very gentle you good luck with the interest rates.

minceyminceypies · 15/12/2024 12:54

Hang on all the posters saying the OP is ungrateful.

You're missing the point.

I'd be uneasy about accepting money that was under the tax radar and I was possibly being used as a means to keep the money out of sight.

Why are none of you querying why he wanted to shift a large sum to his kids?
This could be money laundering from dodgy deals.

The way it could be avoiding tax is if he gave away £400K that he'd not paid tax on before HMRC got wind of it.

Where did the £400K come from?

Savings?
Shares?
His own salary?
Selling stolen goods?

If he's saying £600pm x 2 is his income he will have to declare on a tax return where it's coming from - as an employee or self-employed.

Or is it under the radar and he's not declaring any of it?

If he's forbidden you selling your house and repaying him, it appears he's avoiding having a lump sum appearing in his bank account. And that would be subject to tax, possibly.

Do you know how he was able to share £400K?

minceyminceypies · 15/12/2024 12:57

Nanalisa60 · 15/12/2024 12:52

Sell the house give your dad back the 200k minus what you have already paid him, Then go out to the real world get a mortgage. Your Dad has been very gentle you good luck with the interest rates.

Her dad doesn't want a lump sum appearing in his accounts- maybe question why?

NamechangeRugby · 15/12/2024 12:58

As long as no money laundering involved (and given current checks and regulations I hope that would be unlikely) then the father sounds like he is a wheeling-dealing Alfa male who has done his DS a massive favour, but she can't see it and has over stretched herself on the additional mortgage.

My advice would be to actually talk to the father rather than scrutinise Contract clauses.

Unless he has some specific interest in the particular property purchased, then as long as he gets his £600 p.m it should make no difference to him if it is sold and a more modest property purchased... Assuming the new property is a reasonably sound investment for everyone's financial peace of mind and the Op's well being.

minceyminceypies · 15/12/2024 13:00

The checks would only involve the OP saying where the £200k came from and he may have had to show his bank accounts or income stream. He could say it was a gift but that doesn't mean it has been subject to tax.

We had to share bank info when we gave our DCs a large house deposit.

The fact she is not allowed to sell the house and repay him a lump sum is questionable.

BrightonFrock · 15/12/2024 13:03

Why are none of you querying why he wanted to shift a large sum to his kids?

Maybe because wealthy parents lending or giving their children a house deposit is really common?

LoremIpsumCici · 15/12/2024 13:05

BrightonFrock · 15/12/2024 13:03

Why are none of you querying why he wanted to shift a large sum to his kids?

Maybe because wealthy parents lending or giving their children a house deposit is really common?

And is 100% legal as well.

minceyminceypies · 15/12/2024 13:05

BrightonFrock · 15/12/2024 13:03

Why are none of you querying why he wanted to shift a large sum to his kids?

Maybe because wealthy parents lending or giving their children a house deposit is really common?

To a point yes.

But it's not a gift is it?
It's a loan.
With strings- lots of them.

And he won't agree to it being paid off early or with a lump sum. he also refers to this repayment as his income. So he'd be telling HMRC that it was from employment. Which it isn't.

NoWordForFluffy · 15/12/2024 13:06

minceyminceypies · 15/12/2024 13:05

To a point yes.

But it's not a gift is it?
It's a loan.
With strings- lots of them.

And he won't agree to it being paid off early or with a lump sum. he also refers to this repayment as his income. So he'd be telling HMRC that it was from employment. Which it isn't.

Show quote history

No he wouldn't say it was from employment, as it's not. The self assessment form allows for other types of income.

minceyminceypies · 15/12/2024 13:08

LoremIpsumCici · 15/12/2024 13:05

And is 100% legal as well.

Show quote history

You're not looking at the whole picture.

It's a loan.
Legal.

It's being repaid.
Yes.
There are strings- he's calling it his income.
It's not, so that's not truthful.

He won't allow it to be repaid as a lump sum.

Having been through the gifting of house deposits to DCs and money laundering checks, this has 'suspicious' al over it.

sandrapinchedmysandwich · 15/12/2024 13:09

NoWordForFluffy · 15/12/2024 08:57

How is £600 a burden when you also have a DH? That's bloody cheap for a mortgage or rent these days. If you weren't in that house paying £600, where would you be living and how much would it be costing you?

This. FFS. Some people are so entitled

minceyminceypies · 15/12/2024 13:10

No he wouldn't say it was from employment, as it's not. The self assessment form allows for other types of income.

Try joining the dots a bit more.

I do SA.

You have to declare sources of income.
Repayment of a loan to family doesn't exactly feature.

He doesn't sound caring does he with the way he's controlling the money. OP said her solicitor said it sounded dodgy.

The usual knee-jerk reactions here form posters who are appearing jealous of her loan and not really thinking round it.

Especially when legal advice said it looked dodgy.

PrincessAnne4Eva · 15/12/2024 13:11

If he's said you can't sell and pay it back in full, and you sell and repay him in full, surely that would get thrown out of court as an unfair contract term that cannot be enforceable?

Justsayit123 · 15/12/2024 13:12

Who’s name is the house in?

Moonyblue · 15/12/2024 13:13

There are lots of people that would love to be in your position and have a parent able to help out in this way! I understand why you sibling things your Dad is amazing

Even if the case was that he was also benefiting too, your situation is still very fortunate!

If you really don’t want to pay anymore you are more than welcome to join the traditional mortgage route for the full mortgage at the mercy of whatever interest rate you are able to secure at the time

NoWordForFluffy · 15/12/2024 13:14

minceyminceypies · 15/12/2024 13:10

No he wouldn't say it was from employment, as it's not. The self assessment form allows for other types of income.

Try joining the dots a bit more.

I do SA.

You have to declare sources of income.
Repayment of a loan to family doesn't exactly feature.

He doesn't sound caring does he with the way he's controlling the money. OP said her solicitor said it sounded dodgy.

The usual knee-jerk reactions here form posters who are appearing jealous of her loan and not really thinking round it.

Especially when legal advice said it looked dodgy.

Edited

Yet she didn't investigate it; willingly signed the contract; and potentially committed mortgage fraud as well, if it was declared as a gift (which it likely was, as it's unlikely she'd have got a mortgage alongside it, if it hadn't been).

Clearly getting the £200k was more important at the time. It's only now, when the repayments are apparently becoming unaffordable, that she's suddenly concerned about the money's source and / or her dad's tax affairs.

I have zero sympathy for her position, frankly. And her dad's tax affairs are not her concern.

ETA: no jealousy on my part. I'm just 🙄 at OP and have the world's smallest violin out for her position! 🎻

Imbusytodaysorry · 15/12/2024 13:15

Can you imagine the stress you would be under the last few years with COL crisis and mortgage rises

Id have appreciated my family doing something like that for me .

I agres with others if you don’t what trapped by your dad then sell the house and go out on your own.

You father could have lived off the money I dated he chose to give it to you both as a loan and use the repayments as income.

Maybe his other money is tied up .