Loan from a relative - Questions
Discussion
A retired relative of ours has approx £30k sitting in a current account which he wants to invest.
He cannot put it in an ISA, as he has already got one at the subscription limit.
He also wants to be able to get access to it at reasonably short notice if he should need it back.
Family Smudger have an ISA that will mature in 8 years time and pay out approx £90k. We also have about £15k outstanding debt on a loan facility, which is not getting paid off very quickly, attached to a mortgage. The max borrowing limit on this is £40k
My suggestion is, then, that he invests some of this money with us - He could lend us say £20k for 10 years with a promise of say £25k at the end, which we then use to flatten our debt and stop racking up interest of approx £60 per month, and to use for some small projects and home repair / upgrades. When our ISA matures we will have the money to pay him back, if he really needs the money earlier, we can just pay him from the loan facility and be back where we are now, waiting for the ISA to end.
To make this attractive to him, he needs to get a better return than he is currently getting, or could get elsewhere, and not knowing that much about how this works I have some questions -
1) How much could his £20k make him, if invested sensibly?
2) Would the 'interest' we pay him back be taxable income to him, and at what rate?
3) Do we need to formalise the arrangement legally somehow to prove it is not just a gift to avoid inheritance tax?
4) If he does not live to the end of the term, do we then owe this money to his estate?
Any advice on the above plan, or other suggestions that would be better for him or us would be welcome, thank you.
He cannot put it in an ISA, as he has already got one at the subscription limit.
He also wants to be able to get access to it at reasonably short notice if he should need it back.
Family Smudger have an ISA that will mature in 8 years time and pay out approx £90k. We also have about £15k outstanding debt on a loan facility, which is not getting paid off very quickly, attached to a mortgage. The max borrowing limit on this is £40k
My suggestion is, then, that he invests some of this money with us - He could lend us say £20k for 10 years with a promise of say £25k at the end, which we then use to flatten our debt and stop racking up interest of approx £60 per month, and to use for some small projects and home repair / upgrades. When our ISA matures we will have the money to pay him back, if he really needs the money earlier, we can just pay him from the loan facility and be back where we are now, waiting for the ISA to end.
To make this attractive to him, he needs to get a better return than he is currently getting, or could get elsewhere, and not knowing that much about how this works I have some questions -
1) How much could his £20k make him, if invested sensibly?
2) Would the 'interest' we pay him back be taxable income to him, and at what rate?
3) Do we need to formalise the arrangement legally somehow to prove it is not just a gift to avoid inheritance tax?
4) If he does not live to the end of the term, do we then owe this money to his estate?
Any advice on the above plan, or other suggestions that would be better for him or us would be welcome, thank you.
whoami said:
There appears to be little or no benefit to your relative here.
Lots of complications and potential downsides though.
Indeed; the number of things that could go wrong are almost mind-boggling. The subscription limit for an ISA is now £15k a year so he will have the whole lot invested in an ISA within 30 months anyway. Lots of complications and potential downsides though.
IMO say thank you but no thanks.
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