Lending money to my parents and inheritance tax

PW2023

I’m going to loan my parents some money to enable them to buy a bungalow. After they move, they will sell their current home and pay me back. Doing it this way just takes a lot of stress out of the process for them. They’re well into their 80s and have been in the same family home for nearly 50 years, so stress reduction is key. 

But - after they pay me back - and if they pass on during the subsequent 7 years - will the repayment become subject to inheritance tax? This could be an expensive loan for me!

Does anyone know? 

What about if I get some kind of loan agreement to evidence that their repayment to me is not a gift. Does anyone know if/how that could work?

Brie

I expect they'll have a solicitor involved in the purchase and sale so get them to draw up a simple document to show that you have made a 0% (I assume) loan to them for a short period.  When that has been seen to be paid back there should be no issue with IHT.  Keep the bank records to show the money going to them and coming back to you just in case someone asks. 

Also do ensure that wills are in place just in the (hopefully unlikely) chance one or both of them die between when you loan them the money and they pay you back.  You will want to ensure you get your money back.

And obviously the other stuff too - POAs etc etc etc.

Keep_pedalling

This is a loan not a gift so will not affect their IHT status. If the worst happened and they both died it would be classed as a debt owed by the estate. I agree with Brie, make sure the loan is properly documented. Don’t forget your parents will need to pay an additional 3% stamp duty as this will be classed as a second home. This will be reclaimable if the existing home is sold within 2 years.

Savvy_Sue

Please also think about how long you're able to do this for, and think about whether your parents will need support in actually making the move. It's easy to see a situation where they struggle to complete the move and sale ... 

Also absolutely powers of attorney in place!