Loan from parents and inheritance tax

Frankieday

Hi all, hope you can advise?
My parents have kindly agreed to loan me 30k to pay off a secured loan. After this loan has been paid, I'm hoping to move home and get a new mortgage.  I will be paying the full load amount back ,with the equity from the house sale. Hopefully this will be with in the year.
My dad is now worried that if he should pass within 7 years ,I'll be stung by inheritance tax, even if the plan has been fully paid back.
Could anyone advise please? Many thanks

Keep_pedalling

If your parents die within 7 years the loan becomes a debt owed to the estate and you won’t owe IHT on it. Even if it was a gift you won’t pay IHT on it. Their estate may pay IHT on it if their estates are big enough, but a married couple who own their own home can leave as much as £1M before IHT kicks in.

If their estates are likely to pay IHT then perhaps they should make this a gift rather than a loan.

The general rule in most cases is that gifts and loans don’t increase IHT liability. 

Frankieday

Hiya, thanks for the response. Even if i pay back within say a year? I dont think their estate is worth over 250k. Many thanks

Keep_pedalling

It does not matter when you  pay it back and unless you parents win the lottery they are unlikely to ever need to worry about IHT.

purdyoaten2

Documentation is important. As keep pedalling says your parents are unlikely to have to worry about inheritance tax. 

However, when you repay the loan the same situation applies in the event that, should you pass away unexpectedly, your estate may face the same issue. 

Have your parents document that it is a loan. Have your parents document that the loan has been repaid when you so do. 

Belt and Braces!