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bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4194
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We are thinking of extending our existing home loan

Customer Question

Hello. We are thinking of extending our existing home loan by £100k so that we can contribute to buying an assisted living retirement flat for my mother in law (the other contributors being her (£50k) and her other son (£100k). We can afford the loan outright (just), but she would like to use some of her pension income to contribute by paying us either a monthly or annual sum roughly equivalent to the mortgage payments.
Would we be liable for income tax on those payments, to be offset by the interest on the loan? Or does it count as a gift?
She is a healthy 80 year old below the inheritance tax threshold and has minimal assets (other than £50k she plans to contribute to the flat purchase), but a pension of ~£2k per month.
She wants to give us the money now (rather than save up to create an inheritance) because she is worried that this could be eroded if she needs to go into residential care, and realistically if we are paying back the loan if would impact on family life (holidays etc...) by comparison to now and we were planning to save up to support our sons at uni etc...
The flat would be sold should she die or move into residential care.
Both my husband and I pay 40% income tax.
We are also pondering who should buy the flat. Should it be shared ownership between the 3 parties, or perhaps use a trust? Or she could gift the brothers the £50k have them buy it jointly?
from a tax perspective what are the options and considerations?
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. If the payment is under 7.5K then you could say that it was a Rent a Room payment and that is, using Rent a Room Relief, available tax free up to that limit. If it were more than it would be rental income in your hands, offset by the interest element only of the loan. Alternatively, if your Mother in Law says it is a gift well it is a gift, but I would advise you to have that so documented. Gifts are the easiest way out of this position. I do hope that you have found my reply of assistance.