loan repayment taxable ?

by **ramrod007** on Wed Jan 25, 2012 2:42 pm

Approx 5 yrs ago my son wanted to buy a house.
He did not have the capital or earned enough!
So on agreement, we loaned him £70K . He took a mortgage for 100k, in joint name with my wife. We never paid a penny of the mortgage.
The agreement was to loan him the money..to get onto the market, but when he got a partner, they would take on the full mortgage.
This has now happened.
Him and wife his are now on the mortgage, and we are getting only £49K back of our loan.
Question: We are receiving less money back from our loan. Do we have to tell the tax man ? are we liable for any tax ?
I would have thought not ..but would like second option.

Thank you in advance

Tony

by **maths** on Wed Jan 25, 2012 4:21 pm

No and no.

by **maths** on Wed Jan 25, 2012 4:23 pm

Bit seems to be missing:

No and no but the [£70 - £49K] is a gift for IHT purposes.

by **ramrod007** on Wed Jan 25, 2012 5:30 pm

Thanks for advice ... it was never suppose to be a gift ..only a loan !

At present my son and wife can not pay all of loan back. so we are getting the £49 back on them taking on the mortgage... with the outstanding loan remain... at nil percent interest to be repaid over next 20 yrs.

Thanks for you advice ......

Tony

by **pqtaxation** on Wed Jan 25, 2012 7:16 pm

As Maths wrote there are no immediate tax consequences on you- income, capital gains or inheritance taxes- in your circumstances as I understand them.

But to recap that understanding of those circumstances: your wife and you lent your son £70k interest-free to use as a deposit on his house purchase and your wife and he took out a joint mortgage (which presumably meant your wife was a legal owner as tenants in common but with no beneficial interest) and thereafter your son make all mortgage payments. Son subsequently married and he and his wife have re-mortgage house in their joint names and son has repaid £49k of your loan. Your wife has transferred her beneficial interest (zero) to son’s wife and ceased to be a mortgagor or legal owner. Son agrees to pay back remainder of loan of £21k from you and your wife interest free over next 20 years.

Assuming the above, your son’s wife could have had stamp duty to pay on value of mortgage liability taken on from your wife – check that position with re-mortgaging solicitor as well as that your wife is no longer a joint mortgagor or legal owner.

Is the beneficial ownership of your son and his wife difereret from 50/50?

Is your loan of £21k documented with your son and is it agreed what happens if you or he dies before full repayment has been made? If son does not pay it all back by a) time of his death before yours do you want his estate to do so?; or b) time you both pre-decease him do you wish the remaining balance to be owed to last to die’s estate (hence probably to be offset against his legacy) or forgiven?