It would be wise to formally recognise that you are providing a family loan rather than a gift and to arrange the terms of repayment with your child at the outset; this helps to reduce the risk of misunderstanding later on. The terms would include the length of repayment term and your agreement can be evidenced in a Loan Agreement. The various terms of the Loan Agreement are set out here.
When a loan becomes a gift
Although you may begin with the intention of simply lending money to family, if at some stage in the future you are able to afford it, you may wish to waive repayment and to formally convert the loan to a gift. This should be evidenced in writing with a formal Waiver and Deed of Gift.
From an Inheritance Tax perspective the waiving of the loan will become a Potentially Exempt Transfer (PET) and the consequences of this are that the capital amount of the gift at that point in time will be added to your estate on your death for Inheritance Tax purposes, if you do not survive seven years. Any tax payable as a result of the gift is payable by your child. If they are unable to pay the tax attributable to the gift, HM Revenue & Customs can request that the estate pays the tax.
Implications of lending for your Will
You may wish to use your Will to either ensure that the loan is repaid in full to the estate or that it is waived or settled against that child’s share of your estate vis-a-vis your other children. The loan, whether or not it is repaid to your estate on death, will be an asset of your estate and aggregated with your other assets to calculate any tax due by your Executors.
How to protect your loan
Please contact us to find out more about the ways to protect loan finance provided to help a child get on the property ladder. Please call or fill out our enquiry form and we will get back to you as soon as we can.
Contact us
Please contact us to find out more about the ways to protect loan finance provided to help a child get on the property ladder. Please call or fill out our enquiry form and we will get back to you as soon as we can.
Whether you are gifting property to a family member, undertaking a joint mortgage with a family member, offering a family loan or providing a gifted deposit, the property solicitors at Wellers can help you with all the legal aspects of the Bank of Mum and Dad.
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