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Where Taxpayers and Advisers Meet

Loan to a child on-lent to parent?

Incredulum
Posts:2795
Joined:Thu Dec 03, 2009 5:35 pm
Loan to a child on-lent to parent?

Postby Incredulum » Thu Jun 03, 2021 9:53 am

This is well outside my appreciation for any anti-avoidance rules that may apply and I should be most appreciative of any comments.

An individual, X, has a furnished holiday let, which has a 57% mortgage.

A relative, R, is going to give/lend them some money.

X has a child, C.

R will give/lend the cash to C, interest free. C will on-lend this to X against X's holiday let. C obtains interest income offsettable against personal allowance, X obtains tax deduction against FHL business, at 40%. As this is (to use a corporate term) mezzanine debt (second mortgage/bridging loan/effective equity) obviously a reasonably high interest rate, say 10%, will apply. C spends income on school fees.

I guess this might be annual interest, so would there be a need to withhold income tax? By making it repayable on demand do we get around this?

Thoughts? Many thanks.

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Loan to a child on-lent to parent?

Postby pawncob » Thu Jun 03, 2021 10:49 am

In theory, if it ain't "annual" then it isn't subject to deduction, but this is subject to challenge.
Why not deduct tax and then reclaim it?
With a pinch of salt take what I say, but don't exceed your RDA

Incredulum
Posts:2795
Joined:Thu Dec 03, 2009 5:35 pm

Re: Loan to a child on-lent to parent?

Postby Incredulum » Fri Jun 04, 2021 3:59 pm

Thanks. No reason not to deduct the tax and reclaim it, apart from faff - and indeed I guess alerting HMRC to the existence of this structure which I guess might be prelude to investigation.

But otherwise no worries?

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Loan to a child on-lent to parent?

Postby pawncob » Fri Jun 04, 2021 6:14 pm

I can't see HMRC investigating one of the hundreds of tax deducted returns they receive every day.
Otherwise, no problems I can see.
With a pinch of salt take what I say, but don't exceed your RDA

Incredulum
Posts:2795
Joined:Thu Dec 03, 2009 5:35 pm

Re: Loan to a child on-lent to parent?

Postby Incredulum » Mon Jun 07, 2021 4:10 pm

Thanks, Pawncob.


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