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TonyTax
TonyTax, Tax Consultant
Category: Tax
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I bought a house son to live in as he couldnt secure

Resolved Question:

I bought a house for my son to live in as he couldnt secure a mortgage. He transfers to me a monthly repayment towards the cost of the purchase and when he is able to secure a morgage will repay the balance. Are the monthly repayments liable to income tax.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

The capital repayments won't be taxable on you but any interest will.

In order to avoid having a capital gains tax problem when your son takes over the house, you should have a loan agreement drawn up preferably by a solicitor which stipulates that you have effectively lent your son the money to buy the house and that it is held in your name for him with your loan secured on it until he can get a mortgage of his own to repay you.

I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.

Thankyou for your response.

HMRC are insisting that the repayments are rental income and therefore taxable despite explaining the situation in the same words as I have done to you.

Are you able to provide a statement clearly stating the position.

Expert:  TonyTax replied 1 year ago.

HMRC are assuming (quite understandably) that the payments are rental income because, in the absence of a loan agreement, your name being on the title deeds and your son's name not being on the title deeds, the property is yours to all intents and purposes.

If you are happy to disclose the payments as rental income, deduct any allowable expenses and pay income tax on the "profit", then that's fine but it is an inefficient way of doing things. It would have been better to lend your son the cash to buy the house and to have a loan agreement drawn up with that loan being secured on the property. As it is, you have dug yourself into a hole. Had you told me initially that HMRC were on to you I would have told you what I have told you in this post as well as what I did in my initial answer.

You now have to convince HMRC that the payments are repayment of a loan.

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