Returning a £75k gift from my parents - does this cancel out the inheritance tax issue?

DrWatto

Situation:
My parents are gifting me £75k in the next few months to help with an investment, as money is tied up elsewhere. Obviously, should my parents die before 7 years (and I understand the tapering), I am liable for inheritance tax.

However, if I receive £75k from them in June 2020 as a gift, and then gift this back to them in, say, November 2020 - would I still be liable for inheritance tax on that £75k? Or does HMRC regard it as no net funds as I have paid it back to my parents.

Grateful thanks in advance - I couldn't find any guidance online about this.

[Deleted User]

Why not just avoid all doubt and complications and treat it as a loan? Prepare an agreement to that effect signed by both parties and place emphasis on the fact that it IS a loan and requires repayment within a specified time frame

DrWatto

Appreciate the reply. Unfortunately, the nature of the investment means that a loan is not as straighforward as a gifted amount is (this is a mortgage, so the lenders will not look kindly on a loan), so hence seeing whether, in the eyes of HMRC, a returned gift negates any inheritance tax implications on the original amount. I may well need to ask an IFA this, but thought I'd check here first

[Deleted User]

I just think think it would be incredibly messy. A gift in my eyes is not a gift if it has to be repaid. God forbid that something should happen to your parents before it is repaid. What is your parents estate likely to be worth? You do know that it is the estate that pays inheritance tax, not you?

Mickey666

If the £75k is only being 'gifted' on the condition that you pay it back fairly soon then it IS a loan.  How formal you want to make it is up to you. Will the mortgage company require a written declaration that it's a gift?

I'd guess that even if HMRC investigated they'd simply see the £75k pass from your parents to you and a few months later passing back again.  Looks like an informal load between parents and son - happens all the time and of no interest to HMRC.

In practice, who is ever going to know?

greyteam1959

OP
Seek professional advice.

Jeremy535897

If this is the first gift your parents have made, then it will never be subject to inheritance tax, but it will reduce the nil rate band on their deaths within seven years (this will be complicated by the fact that one parent will outlive the other). If the estate after they have died will be left to you anyway, it makes no odds, and may use up annual exemptions that would otherwise have been wasted.

If your parents don't need the funds, why give them back? If you have siblings, your share can be reduced in the wills.

Make sure any document involved does not create a gift with reservation.