Using 3rd party funds to partially redeem mortgage

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ebs_customer

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Given that variable rates are now much higher than deposit rates what would be the repercussions of getting a loan from a relative to partially redeem a mortgage in order to give them an improved rate of return on their cash?
Specifically wondering about the DIRT/income tax or whatever other liability on the interest received or if there are any other obstacles to be overcome.
Not concerned about securing the loan or any issues related to that, just the legalities and / or tax implications.
 
If you pay interest to an individual, they will have to declare that interest for tax purposes and pay income tax at their top rate.

As long as you pay interest, I don't think it has any practical implications for you.

If you are getting TRS at present, you will have to check if you can qualify for tax relief on the interest that you pay.

Brendan
 
Thanks Brendan, that sounds very straight forward as I was hoping.

The interest on the balance which would remain with the mortgage provider will remain above the TRS threshold anyway so no need to investigate TRS on the "private" interest.

It will certainly be a lot more satisfying to pay the interest to the relative than to the bank!
 
ebs_customer said:
Given that variable rates are now much higher than deposit rates what would be the repercussions of getting a loan from a relative to partially redeem a mortgage in order to give them an improved rate of return on their cash?
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Click to expand...

A dangerous road to go down, I think for many reasons. One example ;

I know a person who a few years ago borrowed part of the house purchase price from a relative in order to give their relative a better return on their pension lump sum.

The borrower has since lost their job and prospects of getting another job are not good.

Relative’s retirement is destroyed.
 
In this instance this is not a major issues as I outlined in the opening post.

The lender stands to inherit the borrowers assets in the event of his death.
Sale of the house could recover equity of more than 2 x the private loan amount.
The lender has a strong income with insignificant debt.
The borrower has a strong diversified income and will likely clear the total debt (bank and private) within 5 years.
 
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