loan un-earned tax

andy_johnson

My mother passed away leaving me as executor of her will. My mother took a legal charge loan from her son of £9,000. The loan was given in 1990, and he's now looking for the loan to be repaid plus interest. There was no written agreement but according to him they had a verbal agreement that the loan would be postponed until her death but the interest not suspendedSince this post i have took out a loan and repaid £18,000still owe £8,000.does he need to pay tax on this money i paid him, or is he allowed so much un-earned income?.

TonyMMM

There are a number of issues here - the least of which is his tax position (which is his problem, not yours).

Is there any record/paperwork at all ?

Is there sufficient money in the estate to pay the loan, if not then the loan "died" with the passing of your mother - the executor isn't under an obligation to pay debts above & beyond the amount of the estate (as far as I know) Why are you taking out a loan to pay it ?

roger196

If son is unable to produce paperwork to support his claim for interest, I would ask him to authorise HMRC to release copies of his tax returns/ notices of assessment for the last six years showing he has declared the interest. If he is unwilling to do this, you can draw your own conclusions. Anyone can claim a verbal agreement to pay themselves a huge amount of money. Anyone who goes so far as to put a charge on a property in respect of a loan, will have a proper written agreement detailing whether interest is charged or not.
ps there are rare circs where the rolled up interest is credited to the account in one lump sum and assessed in one tax year. Suggest you search www.hmrc.gov.uk for "rolled up interest" or "accumulated interest".

andy_johnson

Thanks for your replies Tony & Roger.There is paper work for this legal charge and there was a house left in the estate.My question is the loan taken £18,000 and paid out, does he have to declare this, or is he allowed so much un-earned income?

roger196

Any excess over the original £9,000 loan is interest on which tax is chargeable. There is no allowance for unearned income. This assumes he has sufficient other income to absorb his personal allowance.
Somewhere in the back of my mind is a provision whereby exors are required to deduct tax at the basic rate on interest arising on an estate. I can't remember whether this a spent provision or in what circumstances this is applicable. I strongly recommend that you give the tax office or CTO ( capital taxes office) a ring to protect your own position.

Your original post refers to "but the interest not suspended". Does this mean that the interest was in fact paid out each year during her lifetime.

Xbigman

How can an estate be responsible for the tax position of an individual? The estate (or rather the executors) do not know the recipients tax position thus they cannot know how much tax to pay.
It is perfectly reasonable for the executors to pay out to the individual and let them sort their own tax affairs out.
Regards



X

terryw

Xbigman wrote: »

How can an estate be responsible for the tax position of an individual? The estate (or rather the executors) do not know the recipients tax position thus they cannot know how much tax to pay.
It is perfectly reasonable for the executors to pay out to the individual and let them sort their own tax affairs out.
Regards



X

This is not good advice.

There are many examples of where tax has to be deducted at source by the payer. Bank interest and rent to someone abroad spring to mind. If tax is not deducted correctly then the liability falls on to the payer not the recipient.

Like roger196 I do not know the position here and roger's advice to check it out is good advice.