Cash gift or loan for iht

V2001

Between me and father how do we make the difference between a gift of cash and a loan of cash via bank transfer which is fully repaid back?

Lets say my dad is going to give me 30k which i have to pay back. I dont want this 30k to be seen as a gift of cash if say 8 months later i repay it back to him in full. Else if something was to happen i dont want it falling under the 7 year rule for gifts. 
So how do i distinguish between a cash gift and a loan of cash which is fully paid back? Should we create a letter of some sort detailing the agreement, so its not included as a PET?
Will hmrc accept this should anything happen within 7 years or would they say he made a gift of 30k and i made a gift of 30k when it was paid back to him?

[Deleted User]

Almost identical issue here last week. First question, what would be the likely value of your dad’s estate?
https://forums.moneysavingexpert.com/discussion/6150849/returning-a-75k-gift-from-my-parents-does-this-cancel-out-the-inheritance-tax-issue#latest

V2001

Ok thanks. We will draft a agreement stating that the money is a loan and will be repaid back in full within 24 months. As there anything else we need to specifically include in the agreement?
I take it i will also need to evidence via bank statements if hmrc ever ask if the loan was repaid back in full if something was to occur within 7 years? 

Jeremy535897

V2001 said:

Ok thanks. We will draft a agreement stating that the money is a loan and will be repaid back in full within 24 months. As there anything else we need to specifically include in the agreement?
I take it i will also need to evidence via bank statements if hmrc ever ask if the loan was repaid back in full if something was to occur within 7 years? 

If the loan is at a rate of interest below a commercial rate, there will be a transfer of value. The way to avoid this is to make the terms of the loan interest free, but repayable on demand. See https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14317

V2001

The grant of an interest free loan repayable on demand

• is not a transfer of value (because the value of the right to repayment of the loan is equal to the amount of it)
• but it is a gift because there is a clear intention to confer bounty: the property disposed of is the interest foregone.

But, the grant of such a loan is not, in itself, a GWR.

What does it mean when its says in 2nd point it is a gift because there is a clear intention....??? 

Jeremy535897

What they are saying is that it is a gift within the natural meaning of the word, because the lender could have asked for interest, but didn't. As "gifts" aren't subject to inheritance tax as such, unless they are transfers of value or come within the gift with reservation (GWR) rules, it doesn't matter.

V2001

Ok thanks. So if the loan is repaid back in full it cant be counted towards the 7 year gift rule by hmrc? 

Jeremy535897

It would only become a transfer of value if it was written off, or the debtor was unable to repay it.

V2001

Ok thanks....