Parents paying mortgage - tax implications

[Siko]

Any idea how you could do this legally? I’m assuming it’s horrifically complicated and you’d have to declare to inland revenue and mortgage lender with all the problems that would come with it. From a brief look today I can’t see any obvious way other than using the annual tax free gift of £3k.

[NickXX]

No legality issues at all, but there would be inheritance tax implications.

[JulianPH]

Paying off your mortgage or paying your monthly mortgage payments?

Either way it becomes a PET (Potentially Exempt Transfer) and providing they survive 7 years after the payment (or final payment) then there are no tax complications.

If the money is coming from from one partent (rather than both) then the 7 year rule applies only to that parent.

Edited to say that I think I may have read this question the wrong way round. OP - are you the parents looking to cover the mortgage for your kid, or the kid whose parents are looking to cover your mortgage?!

Edited by JulianPH on Sunday 31st May 15:11

[Countdown]

Siko said:

Any idea how you could do this legally? I’m assuming it’s horrifically complicated and you’d have to declare to inland revenue and mortgage lender with all the problems that would come with it. From a brief look today I can’t see any obvious way other than using the annual tax free gift of £3k.

Transfer the money directly into your kid's account (the one that the mortgage is being paid out of). It's perfectly legal (assuming that the money is from legitimate sources and there's no other reason for doing it. There might be IHT implications if your estate is quite big and there's a risk you might die in the next 7 years but it shouldn't be that hard to plan around this. There might also be "deliberate deprivation of assets" issues but that's a different kettle of fish.

[Siko]

Thanks guys that’s really helpful. Sadly it’s the other way round, I lose my job a month today and pretty much the best case scenario for me is I take a 50% paycut for at least 2-3 years. Needless to say it’s a st time to be a commercial pilot! My folks have offered to help out (they’re not well off but live very modestly and could pretty comfortably make the difference between us having to sell or not). I’d rather switch to interest only for a couple of years but not sure if it’s possible or not with my lender.

[JulianPH]

Siko said:

Thanks guys that’s really helpful. Sadly it’s the other way round, I lose my job a month today and pretty much the best case scenario for me is I take a 50% paycut for at least 2-3 years. Needless to say it’s a st time to be a commercial pilot! My folks have offered to help out (they’re not well off but live very modestly and could pretty comfortably make the difference between us having to sell or not). I’d rather switch to interest only for a couple of years but not sure if it’s possible or not with my lender.

Sarnie is you guy for the mortgage facts, but regarding the tax implications then anything over the gift allowances becomes a PET.

Nothing needs reporting to HMRC or the mortgage provider as these are personal gifts to you.

Providing your parents (or the one making the gift) survive for 7 years after the final payment (over £3,000) there will be no tax to pay.

Sorry to hear about your current situation and I hope it improves quickly.

[Siko]

JulianPH said:

Sarnie is you guy for the mortgage facts, but regarding the tax implications then anything over the gift allowances becomes a PET.

Nothing needs reporting to HMRC or the mortgage provider as these are personal gifts to you.

Providing your parents (or the one making the gift) survive for 7 years after the final payment (over £3,000) there will be no tax to pay.

Sorry to hear about your current situation and I hope it improves quickly.

Thanks Julian, I’m certainly doing better than many people are during this nightmare, but it’s very stressful. Still a chance to keep doing a similar job to my current one but half the company will he chasing one position, so realistically I’d be very very lucky to get it. Hence contingency planning started and being interviewed for other jobs but with the big financial impact described above. Thanks for the help.

[slatermethuen]

Is it not the case that regular gifts out of income (i.e. not from capital) are exempt, and the 7 year rule does not apply? E.g. see here https://www.pruadviser.co.uk/knowledge-literature/...

[JulianPH]

slatermethuen said:

Is it not the case that regular gifts out of income (i.e. not from capital) are exempt, and the 7 year rule does not apply? E.g. see here https://www.pruadviser.co.uk/knowledge-literature/...

Yes, they come under the disposition rule. I was trying to keep things simple!

If this applies to the OP's situation (or, rather, his parents) then this is icing on top of the cake.

[Sheepshanks]

There are regularly questions like this on PH and I find it quite odd that there seems to be a quite widely held belief that giving/receiving money between friends/family must be taxable. (I know there are circumstances in which it might, but it’s not a ‘must’ by any means).