Buying a house - family loans & tax investigations?

[d000hg]

We're looking to move and although we had planned to rent, we came across a really lovely house which we could see being a great home (rather than somewhere for a couple of years). Having been recently reduced to £190k after going on the market for £215k last April, we're not too sure if we can get it for a reasonable price as they seem fairly unhappy to "reduce it much more after already dropping £25k"... (they rejected a couple of 'very low' offers although I don't know what that means in terms of numbers) but anyway that's not the main point.

I've been advised that any half-decent mortgage needs a £25% deposit based on my circumstances, which means about £45k. As someone who was in debt when I started contracting only a year and a bit ago, I'm pretty happy to have up to about £25k at this point but obviously it's not enough.
I approached my parents and they are quite happy to come to some sort of arrangement to lend us the shortfall but I was wondering if this has to be done as an official loan for tax reasons?
Obviously a normal person in a normal job can take an unofficial gift/loan from family, and be pretty sure that they will never face tax investigations... but as a contractor I have to keep my personal finances in good order, as realistically an investigation is quite possible.

So the question is, can my parents simply give me the money with no official agreement in place? I understand there are limits on what can be gifted without incurring tax liability for instance.

Any advice welcome. And yes I know the "as a contractor save until you don't have these problems" argument - and agree with it really - but when buying a long-term home, there's more than just finance to consider.

[OwlHoot]

If your parents are willing to loan you that, can't they take a percentage of the ownership by the equivalent proportion and then have you progressively buy them out by an annual amount equal to the gift tax limit (£5000 per annum I think)?

Or they might be willing, even eager, to keep their stake as a way to invest in a tangible asset before McDoom totally destroys the currency...

[NotAllThere]

If your parents snuff it within 7 years of making the gift, then there's inheritance tax on it (if their total estate exceeds the threshold). Otherwise nothing.

[d000hg]

If your parents snuff it within 7 years of making the gift, then there's inheritance tax on it (if their total estate exceeds the threshold). Otherwise nothing.

If it's a gift... but what if it's an unofficial loan - nothing in writing? Wouldn't a tax investigation notice that they paid me £20K and then I start making monthly payments to them?

[d000hg]

If your parents are willing to loan you that, can't they take a percentage of the ownership by the equivalent proportion

I'm not sure; I think they are keeping their money in cash right now, waiting for the right time to jump back into shares. Worth considering although I don't know how I'd set that up legally. Maybe I just tell the solicitor and they set it up without fuss.

[thelace]

If it's a gift... but what if it's an unofficial loan - nothing in writing? Wouldn't a tax investigation notice that they paid me £20K and then I start making monthly payments to them?

Surely the HMRC are only interested if it's coming out of the compamy books?

If the repayments are coming out of your pocket, why should they be bothered?

[d000hg]

If you get investigated by HMRC, I always assumed they took the opportunity to investigate both the company AND your personal accounts? Maybe I misunderstood that.

[moorfield]

I think its all OK and above board if your parents give you the cash in a brown envelope at a motorway service station.

[Bagpuss]

Some people worry far too much.

[SallyAnne]

If you get investigated by HMRC, I always assumed they took the opportunity to investigate both the company AND your personal accounts? Maybe I misunderstood that.

Hi d000hg,

I can't give you the official rule (as I dont know it, and there probably isn't one - they seem to make this b*llsh*t up as they go along!) but I can tell you what hapened to me.

I got investigated for my first year in business. They investigated both my company AND personal accounts...or at least wanted information on everything. So i'm guessing, yes once they find a way in they'll take a good look around everything!

My first year in business I ran at nearly a loss, as my expenses were so high, but the gig was worth it's weight in gold cause it led me on to much better gigs.

The tax man was concerned how I had even managed to live during that year, and had obviously assumed I was up to no good and fiddling somewhere along the line (which I wasn't).

I told them that I was pretty much poverty stricken for that whole year and only survived due to hand outs from my Dad and boyfriend. They never once questioned this - never once said "well we need to know how much money they gave you" or anything. They didn't care at all.
So I dont think they care about stuff like that....but like I said, I dont know the official rule.

I'm sure you'd be ok - after all it's family. There's no law in this country to say you have to declare money off your family...yet!