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Where Taxpayers and Advisers Meet

Dorumentation required for gift

sharpener
Posts:70
Joined:Wed Aug 06, 2008 3:34 pm
Dorumentation required for gift

Postby sharpener » Wed Sep 22, 2021 11:11 am

M, 35, is buying a house for £1.04M (with a mortgage of £432k). To facilitate this his mother S, 69, is proposing to gift M. £100k, and lend him a further £300k to be repaid from the eventual sale of his current flat.

Question 1: how does the gift need to be recorded so that the 7 year clock for a PET starts to run?

Question 2: does the loan need to be documented in any particular way to satisfy either HMRC or the mortgage provider? Are there any other likely problems?

Many thanks.

pawncob
Posts:4746
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Dorumentation required for gift

Postby pawncob » Wed Sep 22, 2021 12:30 pm

A letter to M setting out the gift is all that's required, and a (signed and witnessed) loan note.
As it's a second mortgage the mortgage company should be informed as a formality. Some accept it, some can be quite sniffy about the legal requirements and insist upon registration at land registry.
With a pinch of salt take what I say, but don't exceed your RDA

sharpener
Posts:70
Joined:Wed Aug 06, 2008 3:34 pm

Re: Dorumentation required for gift

Postby sharpener » Wed Sep 22, 2021 12:50 pm

Thanks for your quick reply pawncob.

I have read elsewhere that the gift needs to be signed as a Deed since there is no consideration, is that no longer the case?

Also, since the loan is to be repaid out of the proceeds of sale of an entirely different property (and this could be an express condition of the loan agreement) how can it be regarded as a charge on the house to be purchased?

ATB

pawncob
Posts:4746
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Dorumentation required for gift

Postby pawncob » Wed Sep 22, 2021 4:55 pm

If it's treated as an unsecured loan then it doesn't concern the new mortgage.
Ideally as a deed, but as no land is involved it's a straight gift so it doesn't have to be a deed.
With a pinch of salt take what I say, but don't exceed your RDA

AGoodman
Posts:1286
Joined:Fri May 16, 2014 3:47 pm

Re: Dorumentation required for gift

Postby AGoodman » Thu Sep 23, 2021 11:26 am

Not a conveyancer but I suspect the mortgage provider may also want the donor to sign something in their standard form confirming that the gift is a gift.

sharpener
Posts:70
Joined:Wed Aug 06, 2008 3:34 pm

Re: Dorumentation required for gift

Postby sharpener » Thu Sep 23, 2021 12:50 pm

Thanks AGoodman.

Yes, the solicitor for the new mortgage lender has provided a standard document re the gift. But it is not in the form of a deed so I was not sure if this was effective for starting the PET clock.

Also they seem to regard the loan as having some effect on the mortgage whereas I cannot see it has anything to do with them if it is not secured on the property in question (or at all). At most I think it might be a lien on the proceeds of sale of the flat but there is no mortgage on that anyway so a private matter between M and S.

someone
Posts:521
Joined:Mon Feb 13, 2017 10:09 am

Re: Dorumentation required for gift

Postby someone » Thu Sep 23, 2021 3:41 pm

You might not have noticed but banks care about all borrowing when they decide to offer a mortgage. (And also ask about if there's any other borrowing you anticipate taking out in the near future)

So failing to declare a loan you are taking out to assist in the purchase, whatever the terms of the loan, is almost certainly a reason for the bank to withdraw the mortgage offer and why your solicitor will want to inform the mortgage company.


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