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TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I would like some information please relating to tax regarding

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I would like some information please relating to tax regarding the following scenario.
I am currently 53. An employee (PAYE) and a higher rate tax payer.
At the age of 55 my plan is to totally withdraw cash from two of my pension funds and combine these with savings to create a ‘pot’ of £150,000.
I have 3 children and would use the 150k to lend them 50k each over a 20 year period repayable at £300 each per month (i.e. a combined monthly income of £900). My hope is that they would use the loan to invest in a house i.e. by having a large deposit available.
I would like to know:
· The tax implications for my children? (All UK residents and basic rate tax payers)
· The tax implications for me:
o On the 150k withdrawal? and
o On the monthly loan repayment of £900? (my intention is to carry on working until at least the age of 65 in my current job)
· Any other tax implications that I have probably overlooked(?!)
Many thanks


If you lend money to your children, they will not pay tax on it. Many parents lend or gift their children money to help them buy property for their own use. If they pay you interest, they won't get tax relief for that interest by using it to buy property to live in.

If you withdraw cash from your pensions you will pay income tax on the excess over and above the tax free commutation element in the tax year of withdrawal at whatever income tax rate or combination of income tax rates are applicable to the sum of the taxable withdrawals and your other income in that tax year. You won't be able to defer the tax charge by lending the money to your children.

If you intend to charge interest on the loans to your children as would appear to be the case, then you will have to disclose that and pay income tax on it. Assuming the interest is paid evenly over the term of the loan, you will earn £1,100 per annum in interest from each of your children (£300 x 240 months - £50,000 / 20 years).

You ought to consult an independent financial adviser if you have not yet done so to discuss your pension withdrawal options as I cannot advise you in that area. You should also consult a solicitor to have loan agreements drawn up which cover every eventuality that could occur over the term of the loans, loan security, life assurance, insolvency, death etc.

I hope this helps but let me know if you have any further questions.

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