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Gift or Loan
Disjoint
Posts: 181 Forumite
Hi community,
My mother in law passed away recently and I am helping my father in law with various issues. When trying to get some advice from the solicitor dealing with it all, I was given a piece of advice I am not quite convinced I should follow.
My mother in law gave my wife and my sister in law GBP 30k each as a loan last year so that they could both buy a house. There is no record of this anywhere - except for a cheque hitting both my wife and her sister's account at the time from my mother in law. The solicitor mentioned that if we declare it as a loan the probate people would like to see written proof of this, not just a cheque hitting an account. In other words if we do not want any complication we should declare it as a gift.
Post my mother-in-law's death my father-in-law mentioned that he would forget this loan. If my father in law were to gift back the loan and lives another 7 years there will be no taxes to pay on this. If we treat this as a gift from my mother in law it will eat up in the tax free allowance the day my father in law passes away.
I believe I kind of understood this properly; I just want to understand how much truth there is in what the solicitor said in terms of complication. I was talking about repaying my mother in law just a few months back so it clearly was not a gift, however I don't have a proof of this as I did not expect this to ever be an issue as both sisters are always treated the same.
Thank you for any potential help - or clarification from what I am potentially completely misunderstanding!?
My mother in law passed away recently and I am helping my father in law with various issues. When trying to get some advice from the solicitor dealing with it all, I was given a piece of advice I am not quite convinced I should follow.
My mother in law gave my wife and my sister in law GBP 30k each as a loan last year so that they could both buy a house. There is no record of this anywhere - except for a cheque hitting both my wife and her sister's account at the time from my mother in law. The solicitor mentioned that if we declare it as a loan the probate people would like to see written proof of this, not just a cheque hitting an account. In other words if we do not want any complication we should declare it as a gift.
Post my mother-in-law's death my father-in-law mentioned that he would forget this loan. If my father in law were to gift back the loan and lives another 7 years there will be no taxes to pay on this. If we treat this as a gift from my mother in law it will eat up in the tax free allowance the day my father in law passes away.
I believe I kind of understood this properly; I just want to understand how much truth there is in what the solicitor said in terms of complication. I was talking about repaying my mother in law just a few months back so it clearly was not a gift, however I don't have a proof of this as I did not expect this to ever be an issue as both sisters are always treated the same.
Thank you for any potential help - or clarification from what I am potentially completely misunderstanding!?
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Comments
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Is IHT likely to be an issue?0
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Would it be possible to argue that the gift was from both MIL & FIL? Then you would be able presumably to have at least half the gift treated as a PET (potentially exempt transfer). It surely doesn't matter which of their accounts they used to transfer the monies...
You will have over 950 k of allowance (presuming there is a house involved) 30k isn't going to be such an issue.0 -
Would it be possible to argue that the gift was from both MIL & FIL? Then you would be able presumably to have at least half the gift treated as a PET (potentially exempt transfer).
And if they haven't been used both parents will have two years of the allowable £3000 gift - so that reduces each daughters' amount to £24,000.0 -
If there where any mortgages involved then there should be records that these were gifts, as the lenders would require written proof that they were unconditional gifts.
If it was a loan then, they need to be included on the probate forms as such, and your FIL, assuming he inherits everything from his wife, can as suggested write the loans off in the form of a gift, and it will fall out of his estate if he survives 7 years.
How big is the joint estate including those loans? There will never be any tax to pay on the gift as IHT will come out of the remainder if the estate exceeds the combined nil rate bands, which if he is a home owner is currently £950k rising to £1 in April.0 -
The solicitor mentioned that if we declare it as a loan the probate people would like to see written proof of this, not just a cheque hitting an account. In other words if we do not want any complication we should declare it as a gift.
The first part of the advice is entirely accurate. Not clear to me if the solicitor told you to declare it as a gift to avoid complications, or if you've concluded that was the implication of his/her remarks?
If it was a loan, I'd say so. HMRC are well aware that the majority of inter-generational loans are rarely documented and may well accept what you say.0 -
The first part of the advice is entirely accurate. Not clear to me if the solicitor told you to declare it as a gift to avoid complications, or if you've concluded that was the implication of his/her remarks?
If it was a loan, I'd say so. HMRC are well aware that the majority of inter-generational loans are rarely documented and may well accept what you say.
Thank you all for your answers!
IHT will be an issue the day my FIL passes away which is why I'd rather trade very carefully on this issue. I only want my wife and sister to pay what is due not anything extra. At the moment there will be no IHT payable at all as everything goes to my FIL and he will gift some assets separately. As to the mortgage providers, I showed them that I had liquidity in a couple of ISAs to cover the deposit - and to not complicate matter didn't tell them part of that money was in the form of a loan. My MIL was always extremely healthy and I never ever expected this to happen so suddenly to be honest.
Dox - to your point, this is why I was really surprised by my solicitor's answer. It felt like she just couldn't be bothered with any complication coming from HMRC potentially raising some concerns. I am just trying to understand how much pain HMRC could give us on this and to see if anyone ever dealt with this scenario before.
On another note, if it were entirely up to me I would have told my FIL in law that this was his gift to us and voila - but he plays entirely by the book (he even got a bunch of lithograph valued to be declared in the estate as well as a stamp book valued at a couple hundred.......)0 -
Thank you all for your answers!
IHT will be an issue the day my FIL passes away which is why I'd rather trade very carefully on this issue. I only want my wife and sister to pay what is due not anything extra. At the moment there will be no IHT payable at all as everything goes to my FIL and he will gift some assets separately. As to the mortgage providers, I showed them that I had liquidity in a couple of ISAs to cover the deposit - and to not complicate matter didn't tell them part of that money was in the form of a loan. My MIL was always extremely healthy and I never ever expected this to happen so suddenly to be honest.
Dox - to your point, this is why I was really surprised by my solicitor's answer. It felt like she just couldn't be bothered with any complication coming from HMRC potentially raising some concerns. I am just trying to understand how much pain HMRC could give us on this and to see if anyone ever dealt with this scenario before.
On another note, if it were entirely up to me I would have told my FIL in law that this was his gift to us and voila - but he plays entirely by the book (he even got a bunch of lithograph valued to be declared in the estate as well as a stamp book valued at a couple hundred.......)
Sounds awfully like mortgage fraud to me.
With an estate in excess of £1M your FIL should take professional advice from an IFA.0 -
Keep_pedalling wrote: »Sounds awfully like mortgage fraud to me.
With an estate in excess of £1M your FIL should take professional advice from an IFA.
It can interpreted two ways - the gift was to fund the ISA and we used the ISA cash to fund the acquisition of the house. So the loan is against the ISA account not the house.
Regarding an IFA - I would have thought the solicitor who will draft the deed of variation should be well placed to also serve as some sort of financial advisor on the matter? The bulk of the estate, like for every Londoner is in the house - so apart from a large house there really isn't much to consider.
That said - do you think that even for a house we should potentially consider an IFA to help structure things?0 -
It can interpreted two ways - the gift was to fund the ISA and we used the ISA cash to fund the acquisition of the house. So the loan is against the ISA account not the house.
Regarding an IFA - I would have thought the solicitor who will draft the deed of variation should be well placed to also serve as some sort of financial advisor on the matter? The bulk of the estate, like for every Londoner is in the house - so apart from a large house there really isn't much to consider.
That said - do you think that even for a house we should potentially consider an IFA to help structure things?
As it seems your FILs estate is somewhat north of £1M then we are not simply talking about a house, but substantial liquid assets as well. Using a solicitor for financial advice and tax planning Is probably no better than asking some random bloke down the pub for advice.0 -
Keep_pedalling wrote: »As it seems your FILs estate is somewhat north of £1M then we are not simply talking about a house, but substantial liquid assets as well. Using a solicitor for financial advice and tax planning Is probably no better than asking some random bloke down the pub for advice.
Point taken - will get a financial advisor asap!0
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