Q: I was talking to my retired parents (in their 70s) the other weekend about the lower interest rates and their declining income.

It occurred to us that instead of them investing their money in institutions they could "invest" it with us. We could pay them a higher rate than they currently receive and we could pay a lower rate than we currently pay on our mortgage.

For example, a one-year deposit rate is about 2.7 per cent and a one-year mortgage rate is 3.6 per cent. So we could split the difference at, say, 3.15 per cent. We could reset this every year.

Could they gift us a lump sum and then we could gift them back 3.15 per cent as a table-type loan?

Or could my parents pay me the money, and I pay off my current mortgage? Then I put the repayments to my parents into one of my current accounts and give them a card to access the money. So it doesn't physically transfer to them.

That way they get the full 3.15 per cent with no tax taken out, as they aren't receiving any income as such. So no need to declare it, as they are just spending money out of my account.

Could this possibly be considered as tax avoidance? I like to think of it as minimisation and helping my parents out.

Should they require a lump sum for any reason, we could then take out a mortgage if necessary. Our current loan:value ratio is under 50 per cent.

It would seem to benefit both parties. What else should be considered? Thank you for your time and wisdom.

A: This reply actually draws on the wisdom of many readers of this column. More on that shortly.

But first, let's look at the tax situation, where I'm afraid your creature in sheep's clothing


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What 33% tax rate?

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