Inheritance tax and equity release

wiltsgrandad

We have been offered a large interest free loan by one of our children, to be repaid in full on our deaths. Can this repayment of loan be deducted from probate, even if it is paid to a beneficiary and executor of the will?

Keep_pedalling

If you require a private ER loan from one of your children then I would have thought your estate is well below the IHT threshold which is up to £1M for a married couple.

Any outstanding debts on your death will be subtracted from your assets, so if for instance you had assets of £500k and and outstanding loan of £100k your net estate would be valued at £400k.

The child who lends you the money should secure the loan with a charge on your house. It does not matter that the creditor is also your executor and beneficiary.

Be aware that should this child die before you the loan would still form part of their estate.

wiltsgrandad

Is the threshold not £325000?

Flugelhorn

wiltsgrandad said:

Is the threshold not £325000?

No there is a residential allowance - The £175,000 RNRB is available to those passing on a qualifying residence on death to their direct descendants - so that is 325 + 175 for each of you = 1 million

poppystar

Does OP have a property? 

Flugelhorn

poppystar said:

Does OP have a property? 

good point

Keep_pedalling

poppystar said:

Does OP have a property? 

Should not be a problem unless the child’s buys a share, but the OP was talking about a loan.

Keep_pedalling

Flugelhorn said:

wiltsgrandad said:

Is the threshold not £325000?

No there is a residential allowance - The £175,000 RNRB is available to those passing on a qualifying residence on death to their direct descendants - so that is 325 + 175 for each of you = 1 million

We are all assume you are married, if you are not then it is more complicated,

Flugelhorn

Start again - are you married? and do you own a property?

poppystar

Keep_pedalling said:

poppystar said:

Does OP have a property? 

Should not be a problem unless the child’s buys a share, but the OP was talking about a loan.

Yes, which as you wisely said should become a charge on the property and which clearly can only be done if OP has one. 

If not I assume a formal loan agreement would have to be set up that deals with what would happen in various scenarios of death. 

GDB2222

This is not effective as a ruse for reducing IHT, if that was the question.