Offset mortgage

[na764]

I've taken out an offset mortgage and want to put some money into the linked savings account. However, the money will be gifted from a family member ( from recent property sale)
Could someone explain the pitfalls here , things to be aware of etc.

[northernladuk]

https://www.gov.uk/inheritance-tax/gifts

If it's a lot then go speak to a specilist like a tax advisor or solicitor. Don't do things like this on the cheap without proper advice.

There is of course the issue of family falling out over money as well. If you think this won't apply to you then fill your boots but every family that fell out of loaning money probably thought it wouldn't apply to them either.
Don't underestimate people's greed and jealousy, even family, so make sure everyone is OK with it.

[SueEllen]

Money laundering regulations - you will trigger that if you don't at least talk to your lender and be able to prove where the money has come from.

Other than that just make sure it is on a firm legal footing as NLUK said.

[Lance]

Money laundering regulations - you will trigger that if you don't at least talk to your lender and be able to prove where the money has come from.

Other than that just make sure it is on a firm legal footing as NLUK said.

if it's already an offset mortgage then the money laundering checks have been done. They are done as part of account setup.
And as the offset savings are effectively capped at the value of the outstanding mortgage there is a limit against which it has been checked.

[northernladuk]

if it's already an offset mortgage then the money laundering checks have been done. They are done as part of account setup.
And as the offset savings are effectively capped at the value of the outstanding mortgage there is a limit against which it has been checked.

This. The and maybe confusing the extra checks and scrutiny are around loans for deposits which is different? With an offset it's your personal money sitting in your account so there is no requirement for the bank to check that as it moves.

Oh, something else for the OP. You won't get interest on the savings in your account when using to offset. Still a good idea as the mortgage interest will always be more than the bank interest but still worth considering and doing the numbers when looking at the savings. If the mortgage is 4% but you are getting 1% on the money if it wasn't being used to offset the actual benefit to you is 25% less than you thought if you get me. There maybe better savings rates you could find which could reduce that benefit even further.

Premium bonds have gone up to 1.4% recently so if you are a bit of a gambler or like the fun of a free punt they could be a good option.
There appear to be rates of up to 3.5% (albeit with a fixed term for the higher ones) so if you've got a 4% mortgage the savings on an offset vs savings starts to be very small.

If you ever have to pull that money out you could be left with a mortgage this is considerably higher than normal rates as well.

[na764]

Would there be any tax implications due to the gift or due to placing it in an offset account. Of course as nluk mentioned no interest on the savings so nothing to tax there.

[northernladuk]

Would there be any tax implications due to the gift or due to placing it in an offset account. Of course as nluk mentioned no interest on the savings so nothing to tax there.

Yes there would. I put the link to the information in the 2nd post which is why I also advised to speak to a specialist. Don't be shifting 10's if not 100's of K of cash around on the advice of some random contractors on the web.

[dingdong]

This. The and maybe confusing the extra checks and scrutiny are around loans for deposits which is different? With an offset it's your personal money sitting in your account so there is no requirement for the bank to check that as it moves..

Banks do (from personal experience) conduct checks on large amounts being transferred into an offset mortgage account. They will want to be satisfied about the source of funds even if transferred from an account in your name.

[Smartie]

I'm a big fan of offset mortgages, particularly when interest rates are higher - had my first one at around 7%.
They are perfect for contractors who need to keep a 'warchest' of readily accessible funds but still want some return on them.
You do need to make sure you keep some money in the offset account to compensate for the slightly higher rates of offset mortgages - recently only 10% more (i.e. not 'considerably' higher) so you need to keep 10% of the loan balance to break even i.e. get no interest at all.

What you're asking though, is a different question.
Your family can give you as much as they want as a gift, which I don't believe HMRC treat as taxable income.
There is a £3k/year gift allowance per person (your parent) which is exempt from inheritance tax (IHT).
Above that, if they live for 7 years after the gift you're fine. If not, the gift may be subject to inheritance tax.
It's a fairly complex area so you should talk to a professional, and them about it.

You should also be prepared to prove where the money came from because banks are pretty hot on money laundering (AML) stuff these days, particularly above £10k.

[Lance]

There is a £3k/year gift allowance per person (your parent) which is exempt from inheritance tax (IHT).
Above that, if they live for 7 years after the gift you're fine. If not, the gift may be subject to inheritance tax.

£5k if a wedding gift