Can my parents write off a loan to me?

notaclue2018

My parents lent me £30,000 to buy my flat in 2008. It is listed as a second charge on the land registry and we had proper paper work drawn up. I don't pay interest - the loan is to be paid off when I sell the property.

However, my parents would now like to gift me the money instead and just write off the loan. As I understand it, this sum could then be liable to inheritance tax if they pass away within 7 years. As my dad is 83 we would not do it in his name, but in my mum's as she is only 67.

Is this is a fairly straightforward process or am I missing some big bear traps/issues - very keen to do it all properly and legally!

warby68

I would think the mechanics are that your mum will gift you another £30k and you will repay the original joint loan with it rather than write it off.

As long as the reasons why it was originally a loan not a gift are no longer material.

notaclue2018

Thank you... but what if they don't have another £30,000 to transfer to me to then pay it off again?

Pixie5740

Is your dad's estate anywhere near the IHT threshold?

warby68

Not sure - that might be for a solicitor to help with (and it does beg the question should they be doing this if they have no other accessible cash although I presume that was considered when the loan was set up without repayments)

notaclue2018

I am not too sure as I don't really know anything about IHT, but I imagine it would be... for example my mum and dad's house is worth about £950,000 (though of course he would leave that to my mum). I'm not really sure about other savings and investments. Sounds like something I should ask about.

Pixie5740

With an estate that size your parents should really pay for some professional advice in terms of estate planning.

notaclue2018

Sensible advice, thank you!

Clive_Woody

I would have thought your parents could simply have the second charge on your property removed, effectively cancelling the loan. It is an informal agreement between you and them and the only formality is the charge on your property.

For IHT purposes this would be considered a gift but as you state the 7 year rules applies. I assume your dad has a will where he leaves everything to his wife. It might be worth having a look at the link below and maybe when your parents/you talk to a solicitor about getting the charge removed also discuss estate planning as was previously mentioned.

https://www.gov.uk/inheritance-tax

jonesMUFCforever

IMO no new loans needs be done - just complete the appropriate Land Registry form to remove the charge.