Hi,

My daughter and son-in-law are buying their first home. We can afford to
lend them the money, and charge a lower interest rate than the bank does
(which is still a lot better than what we get as interest from the bank),
and keep the money in the family. I am wondering about e.g. tax
implications here. Will my daughter have to pay tax on this? Is it
possible to legally structure this as a conventional mortgage? Any advice/
pointers would be much appreciated.

Tia

Albert

Albert Koelmans wrote:

My daughter and son-in-law are buying their first home. We can afford to
lend them the money, and charge a lower interest rate than the bank does
(which is still a lot better than what we get as interest from the bank),
and keep the money in the family. I am wondering about e.g. tax
implications here. Will my daughter have to pay tax on this?

No, but you will, the point being that you are earning interest, so you
would pay income tax on this in the same way as you would on interest
the bank would pay you on your savings. The only difference is that the
bank usually diverts the tax (at basic rate) and credits you only with
the rest, whereas with the arrangement you propose, you would receive
the interest from your daughter and you would need to declare this on
your tax return and pay the tax yourself.

Is it
possible to legally structure this as a conventional mortgage?

Yes. You would draw up a loan agreement and a mortgage deed and get
the latter recorded at the Land Registry. Any solicitor will be able
to advise. The way this is often done is that the solicitor acting
for your daughter in the purchase should be a member of a firm of at
least two solicitors, so that the other can act for you (there would
be a conflict of interest if the same solicitor were to act for you
and your daughter). The recorded mortgage deed is what will prevent
them selling the house without your permission, and which will give
you the right to kick them out and sell the place yourself should the
worst come to the worst.

How you would structure the loan technically is another thing you'll
need to think about. You'll want to be able to change the interest rate
when economic conditions change, so you might consider linking it to
BoE base rate somehow. You may or may not want to pre-agree a date
by which the loan should be repaid, you may want to keep it interest-only
initially, etc. You may want to operate the loan account just as though
it were a savings account for you, i.e. your daughter will pay you
interest each month, at the agreed rate, on the actual balance in the
"account". If she pays you more, that would be a capital repayment
(equivalent to you making a savings account withdrawal). For tax purposes
it's important to keep track of what portions of any payments represent
interest (which is taxed) and which represent return of capital (which
is not).

In an earlier contribution to this discussion, Albert Koelmans
wrote:
Hi,

My daughter and son-in-law are buying their first home. We can afford
to lend them the money, and charge a lower interest rate than the
bank does (which is still a lot better than what we get as interest
from the bank), and keep the money in the family. I am wondering
about e.g. tax implications here. Will my daughter have to pay tax on
this? Is it possible to legally structure this as a conventional
mortgage? Any advice/ pointers would be much appreciated.

Tia

Albert


I can't see any way in which your daughter would have to pay tax - even if
you *give* her the money (provided you live for another 7 years). If it's a
loan, you don't need to survive for 7 years - but would probably prefer to!

You will have to pay tax on the interest you receive.

You would be wise to have the loan registered as a charge on the house, like
a conventional mortgage. Then, if the house is subsequently sold, your loan
will have to be repaid. You may, of course, choose to re-lend it to them if
they are upgrading - but just suppose that the worst happens, and they split
up and sell the house. By having it registered, you will retain control of
the money and of what subsequently happens to it.
--
Cheers,
Roger
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Albert Koelmans wrote:

Hi,

My daughter and son-in-law are buying their first home. We can afford to
lend them the money, and charge a lower interest rate than the bank does
(which is still a lot better than what we get as interest from the bank),
and keep the money in the family. I am wondering about e.g. tax
implications here. Will my daughter have to pay tax on this? Is it
possible to legally structure this as a conventional mortgage? Any advice/
pointers would be much appreciated.

Your daughter doesn't have to pay tax on it. You would have to pay tax on
the interest, but not the capital repayments. If you put the money into a
savings account you would have to pay tax on the bank interest at the same
rate, so that isn't a major issue.

You can get a loan agreement drawn up by a solicitor, and get the loan
secured on the property.

On May 4, 7:35*pm, Jonathan Bryce
wrote:


Another alternative is that you buy a defined share of the house.
You don't get any interest of course, but you have an investment in
property. There will be capital gains tax to pay (on your share) when
it is sold nbecuase it is not your residence.

Robert

If you people go legally mean do conversation in written through lawyer then she had to pay tax on it but as this is family matter then you can do oral conversation and can save some money.

i am currently in the process of buying my first home. my parents have offered to provide the mortgage, acting as the lender. however, i am unsure of the practicalities of this....