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Let's say my brother acts as guarantor for my mortgage, so that I can buy a bigger house than before. He does not put his name on the house deeds, and he does not contribute to mortgage payments, I can still afford these on my own. I then make ~£9000 a year profit in renting out 3 of the rooms, and in 5 years, the house increases in value by £30,000.

My brother then wants to buy a house. As a thank you for putting his name on my mortgage and helping me, I want to give him £30,000, to help him with his deposit.

Would the law see this as a gift (tax free), or would they see it as us trying to avoid income tax that we would have to pay, if for example, we decided to pay my brother in rental income from my house instead?

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    His guarantee on your loan and your gift to him are completely distinct and separate things.
    – user4657
    Feb 5, 2018 at 21:57
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    @ohwilleke You are mistaken. "Gift" does have a verb form in English. See, for example: en.wiktionary.org/wiki/gift#Verb
    – GrandOpener
    Feb 6, 2018 at 6:25
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    @ohwilleke I'm not talking about colloquial or incorrect usage; I'm talking about proper English. "Gifting money to people," is correct English grammar. If you don't like wiktionary, feel free to look up "gift" in your dictionary of choice--I guarantee the verb form is there because it's quite normal English usage.
    – GrandOpener
    Feb 6, 2018 at 6:43
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    When you give someone money is it can be part of a transaction. When you gift someone money it is clearly meant that nothing is expected in exchange. OP wants to gift the money rather than give it, the distinction is important. Disfavoured usage does not mean incorrect, just less common. Perhaps people have been less generous in the past twenty years which has cause it to fall out of favour?
    – Phil
    Feb 6, 2018 at 8:58
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    @ohwilleke - Your ngrams doesn't support your hypothesis. There are many meanings of "to give" that are not synonymous with "to gift", such as "to give advice". Just because "gave" is more common than "gifted" doesn't mean that "gifted" is not common when the meaning is "to give as a gift".
    – AndyT
    Feb 6, 2018 at 9:19

2 Answers 2

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It is certainly possible to give gifts to your relatives (or to anyone really). But, the harder question is whether or not it is really a gift.

A characterization of a transaction as a gift is less likely to be questioned if it is between related parties, and it is less likely to be questioned if it isn't obviously a quid pro quo.

If you told your brother that you would make a gift to him of all of the appreciation in the house, if he made the guarantee in advance, it would be a guarantee fee (or an equitable or nominee ownership) rather than a gift. But, with the timing and motives described in this post, it is certainly a closer call.

The fact that the "gift" amount exactly matches the appreciation casts doubt on the theory that this is really a gift, but doesn't absolutely clearly require the conclusion that it is not.

This could end up being resolved either way, and ultimately, could be very dependent upon the detailed facts and how they are presented to the person determining if tax is owed.

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This seems to be more a question about whether you can deduct the payment to your brother from your income than whether he will have to pay tax on the money he receives.

Money received can be tax free if it is a gift or a reimbursement for something paid or previously given.

You can deduct the payments yourself if they are income to the recipient, i.e., interest on a loan, or for professional services or work done that improves the value of the property.

There may be exceptions to these general rules based on your jurisdiction. But it seems like you have a decision to make - deduction for you or income to your brother.

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