Cash gift subsequently repaid - IHT implications?

Parents 'gift' child money for a property deposit which is repaid 6 months later

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As a rusty accountant, I would love this groups advice.

My daughter is purchasing a property, however the original sale of her current flat fell through due to the economic turmoil. She already has another buyer lined up for her flat, however it can't complete in time for her onward purchase. My husband and I are proposing to lend her £180k to add to her exisiting mortage to enable her to complete on her onward purchase.

Her mortgage provider (halifax bank) will only accept this if it is given to her as a gift. I am happy to do this, in the knowledge that it is really a loan and she will repay me as soon as her exisiting property sells. We will need to sign a letter with the bank stating that the money is a gift, however my daughter is also proposing to sign a letter between us saying she sees the money as a loan and will repay us straight away on sale of the flat.

My question is - what are the IHT implications in all of this if (god forbid) my husband and I, or our daughter, passes away? (We have two other children to consider).

Specifically:
1) If my daughter repays the gift (likely within 6 months), does the gift still stand, or does she effectively have to 'gift' the money back to us resulting in a dual liability?

2) Am I right in thinking that if my husband or I passed, the gift would remain a PET and it would only crystallise if we were to both pass away?

3) Are there any other factors we should consider?

Huge thanks in advance!

 

Replies (26)

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By David Ex
25th Nov 2022 20:05

Lara Russell-Jones wrote:

We will need to sign a letter with the bank stating that the money is a gift, however my daughter is also proposing to sign a letter between us saying she sees the money as a loan and will repay us straight away on sale of the flat.

I think you all need to be very careful and mindful of any accusations of wrongdoing that could be made. I may be wrong but there seems to be the suggestion of a misrepresentation being made in order to obtain a loan. You might want to take legal advice to clarify if that is the case and, if so, the potential consequences.

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Replying to David Ex:
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By Leywood
25th Nov 2022 20:34

Must admit the word that popped into my head was fraud, rather than misrepresentation.

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Replying to Leywood:
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By David Ex
25th Nov 2022 20:57

Leywood wrote:

Must admit the word that popped into my head was fraud, rather than misrepresentation.

You might say that; I couldn’t possibly comment!

Thank goodness the OP didn’t use her real name.

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Replying to David Ex:
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By Lara R
25th Nov 2022 21:17

Goodness, it was never my intention to suggest fraud or anything untoward here.

We are very happy to honour the gift for the mortgage lender and have no intention of claiming anything against the property. It is more that my daughter would repay the £180k to us when her flat sells. Perhaps my question should have been - should her repayment to us also be treated as a 'gift' in the eyes of HMRC?

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Replying to Lara R:
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By David Ex
25th Nov 2022 22:09

Lara Russell-Jones wrote:

Goodness, it was never my intention to suggest fraud or anything untoward here.

Lara Russell-Jones wrote:

We will need to sign a letter with the bank stating that the money is a gift, however my daughter is also proposing to sign a letter between us saying she sees the money as a loan and will repay us straight away on sale of the flat.

 

I have no idea what your intentions are but, if you are an accountant, I’m sure you understand the difference between a gift and a loan.

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By 356B
25th Nov 2022 20:52

Surely, as long as the loan is not secured on the property it's got nothing to do with Halifax!

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Replying to 356B:
RLI
By lionofludesch
25th Nov 2022 22:26

356B wrote:

Surely, as long as the loan is not secured on the property it's got nothing to do with Halifax!

They don't have to lend the money, of course.

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By kaff
25th Nov 2022 20:53

Bearing in mind others' reservations, might you be able instead to jointly purchase with your daughter in the knowledge that she'd buy you out when she sold her flat? It would cost more in SDLT but might be preferable to your Plan A.

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By Hugo Fair
25th Nov 2022 23:40

"When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean—neither more nor less." "The question is," said Alice, "whether you can make words mean so many different things."

... and the same transaction cannot be BOTH a gift and a loan.

The potential for being accused of fraud is because "Her mortgage provider will only accept this if it is given to her as a gift" - which I presume means that the provision or a mortgage contains a term to that effect. If you give that assurance and then later renege on it, then that doesn't look good!

Regarding your specific questions:
1) If your daughter repays the gift later then that is a separate transaction (which doesn't simply cancel the existence of the previous one).
2) The gift (based on the limited info here) would most certainly be a PET - but when it would 'crystallise' would depend on whose death and who had made the gift.
3) Loads ... starting by finding a different 'plan'.

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By Tax Dragon
26th Nov 2022 03:20

I'm a bit surprised Justin hasn't popped by to say there's no problem with any of it.

To be fair to him, assuming the second letter had no legal effect (and in particular didn't create - or record - an enforceable debt), I'm not sure I would disagree.

Whether such an assumption would be correct is of course a legal matter. IANAL. But... the answer(s) to the OP's question(s) depend(s) on it. If there's no debt, it would (for example) mean that parent(s) couldn't reclaim the money from daughter's estate (and the 180k would be taxable as part of daughter's estate). It would mean that, if daughter returned the money as planned, that would be a PET.

Conversely, if the letter did create or record a debt (the existence of which was withheld from the mortgage provider), I believe that would be mortgage fraud, as has been said.

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Replying to Tax Dragon:
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By Justin Bryant
28th Nov 2022 10:09

I've commented here before that even the SC aren't concerned by this sort of thing.

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Replying to Justin Bryant:
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By Justin Bryant
02nd Dec 2022 13:53

And have a look here at what the Crown Prosecution Service and Scotland Yard aren't interested in either:

https://www.dailymail.co.uk/news/article-11493253/Judge-slams-Scotland-Y...

https://www.lawgazette.co.uk/news/solicitor-jailed-for-12-years-after-pr...

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By Paul Crowley
26th Nov 2022 12:58

The Halifax will only have a problem if daughter fails to make payments.
What the F could they do if, after receiving the gift daughter sells the flat and goes on a 1 year World cruise.
It is her money, her decision
@TD
Justin has in the past listed a link to a massive mortgage linked fraud case that went nowhere
https://www.accountingweb.co.uk/any-answers/interesting-mortgage-fraud-s...

6. The mortgage advance was procured by fraud. The respondent dishonestly misrepresented on the mortgage application form that the sale from Mitchell to the respondent was not a private sale, that the deposit moneys were from her own resources and that she was managing the property. The purpose of the fraud, as found by the trial judge, was to raise capital finance for Mitchell from a high street lender which he would not otherwise have been able to obtain, rather than to fund the purchase of the property by the respondent.

7. Stoffel & Co, solicitors, (“the appellants”) acted for the respondent, for Mitchell and for the chargee, Birmingham Midshires, in connection with the transaction.

So I agree that Justin may well suggest that Halifax would not get any satisfaction.
@OP
Just do not put the evidence in writing or email
And help your daughter out if she struggles with the mortgage
You did not mention the loan to valuation, which may be driving this
DEFINITELY do not be a joint owner

Version 2 could be that she sells you the flat, and you sell it. But SDLP

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Replying to Paul Crowley:
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By Tax Dragon
26th Nov 2022 14:18

Would you say all that to a client?

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Replying to Tax Dragon:
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By Paul Crowley
26th Nov 2022 17:59

Never been asked
But that is also true of most questions posed in any answers.

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Replying to Paul Crowley:
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By Tax Dragon
27th Nov 2022 05:50

I shouldn't have said "all" - most of your post was @me.

Take the bit @OP though. Is that how you advise clients - do this, don't do that, DEFINITELY do/don't do the other? It's very... strong... compared to anything we would say... our insurers would let us say... to clients (other than in relation to actions needed for compliance).

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By Lara R
26th Nov 2022 17:19

Thank you all for your comments and I can see that it is a much more complicated situation than my initial assumptions and will be taking some tax advice.

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By OldParkAcct
26th Nov 2022 17:48

The obvious solution is for your daughter to gift you the equity in property that she is in the process of selling. She will hold the property on trust for you until the sale is completed, when she will then give you the proceeds.
Your gift to her of the amount to purchase the new property would then be an outright gift and declaration can be made to the mortgage company without the risk of being accused of fraud.

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By I'msorryIhaven'taclue
26th Nov 2022 19:15

If I've read this correctly, what you're proposing is effectively a bridging loan; and presumably your daughter will have two mortgages for a time, one on the old and one on the new property.

How feasible would it be for you and your husband to buy your daughter's flat - paying say £180k as a deposit and taking out a mortgage / bridging loan for the balance? You and your husband then sell the flat to the buyer who is currently lined up, but dragging his feet.

A bit off-piste, but I thought it worth chucking that idea in the hat as it might just sidestep any fraud / IHT / Halifax hassle.

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By Tax Dragon
26th Nov 2022 19:59

The real solution is for mortgage companies to get more realistic. What Paul said is right - they don't really care about anything (AML etc permitting) as long as they get paid. The arrangement with your daughter has zero (or in some circs maybe even a positive) effect on whether they get paid. So it's ridiculous they care about it.

In fact, if the agreement with your daughter (that she would repay your gift once she has the funds) was non-binding, it might not affect whether or not they advanced the loan. Ask them and see if I'm right.

The issue is your desire to make that agreement binding/enforceable, primarily to preserve the balance between your children but also to avoid doubling up on IHT. It shouldn't affect the mortgage, but it probably would (again, ask and see).

On the IHT effects, I'm going to make a political point. I love the mathsiness of IHT, but it is an unfair tax IMHO. And that makes it a bad tax. IMHO again. This isn't talked about much in here, but the really rich can avoid/mitigate it in ways the merely moderately rich can't. One way to avoid your dilemma, for example, would simply be to make outright gifts of £180,000 to each of your three children. (Or buy them each a house... forget the mortgage!) Balance preserved (some minor haggling over NRB aside), IHT likely reduced rather than potentially increased.

Maybe you can afford my solution, maybe you can't. I figure it depends how rich you are. OK it's a very basic, low-level example of what I mean - there are far more subtle, far more effective rich-only savings - but it's apt and easy to understand. So... ideal both for my political point and for in here.

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Replying to Tax Dragon:
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By Tax Dragon
27th Nov 2022 06:08

I don't know how you get from here to there, but the longer they leave IHT as is the worse the problem will become as it catches more and more people.

My 'there' would I think be a gifts tax at up to 20% charged on the legatee/donee rather than the deceased/donor. Obviously lots to work out (including taxation of trusts) but as a starting point it seems inherently fairer. In many ways, anyway.

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Replying to Tax Dragon:
paddle steamer
By DJKL
28th Nov 2022 10:46

I am more a CGT on death sort of person ,taxing pregnant gains (including second death of couple re the family home) and permitting rollovers with private home during life which would also be taxed if not reinvested, effectively scrap most of the CGT reliefs and scrap IHT. I find it inequitable that the individual who sticks his taxed savings into the bank gets taxed on the interest earned but the individual who buys Berkshire Hathaway may get a tax free uplift, why should one sort of "profit/gain" be treated differently from another?

The Swedes operate this approach re housing with a 30% charge (generally this reduces to 22%) and a three year reinvestment period. (Which applies to reinvestment in a family home not just in Sweden)

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Replying to Tax Dragon:
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By WhichTyler
27th Nov 2022 12:00

Leaving aside the potential issues of what happens if someone dies during the process, the mortgage company are most likely to be concerned that there are no other claims on the property they are lending against; that is why they want it documented as a gift (ie if the property is sold/repossessed, the parent can't make a claim on the proceeds). They are not very concerned about what happens within the family.

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Replying to WhichTyler:
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By Tax Dragon
27th Nov 2022 15:01

IANAL. IAIPNAPL. But it seems to me then that what we need is some system whereby lenders could be given some kind of first charge against a property, so that their claim could not be displaced by any claims anyone else might have.

I feel a petition coming on. In fact, why don't we already have this? I'm sure some countries do. Is it the same throughout the UK?

Too late to change the rules for the OP, no doubt, but, given such protection, Halifax should have no difficulty in lending in such cases in future. So please sign my petition.

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Replying to Tax Dragon:
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By Paul Crowley
27th Nov 2022 18:41

If only you had a cheek to put that tongue into

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Brunel
By Brunel
27th Nov 2022 08:37

Without affecting what happens in your lifetimes you could adjust your Will so that gifts are taken into account when calculating legacies to ensure equity between the children.

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