If I buy a house for my son will I be hit by the taxman? | Money | guardian.co.uk

If I buy a house for my son will I be hit by the taxman? | Money | guardian.co.uk

Q I am considering buying an apartment or house for my son and his girlfriend. I am 60, and am thinking about charging no interest, but merely asking for (say) a 5% return until the house is notionally paid for. So, for example, if the property cost £300,000 I would ask for £15,000 a year until the capital cost is paid off.

The objectives are (probably obviously) to transfer funds to my son well ahead of expiring – so there's no inheritance tax to pay – and to receive repaid capital to avoid a taxable flow of interest. I would then have the illusion of income until I conveniently die at 85.

Is there a flaw in this? Is there a taxable event, or "deemed" interest on the loan? What if I retain an interest in the house as collateral until the debt is paid?

I have no doubt families get up to all sorts of dodgy transactions between themselves without mentioning details to HM Revenue & Customs, but you have probably gathered I do not wish to do that. This model seems to have lots of advantages, but I haven't seen reference to it elsewhere so I am probably missing something. PE.

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