Giving gifts within 7 years

roseka

My mother is in her 90's and a few years ago loaned my sibling a large sum of money (with my full knowledge) which he has been paying back, albeit there is a considerable amount still outstanding, in the tens of thousands. The loan was drawn up with a solicitor, with it written in that whatever is outstanding at the time of her death will be adjusted out of the estate (ie if he still owes say £20k then I get £20k more than him, although I don't know how we actually do this - we are the executors). She is more fragile now, although not to the extent of losing capacity, and it is bothering her that there may be arguments or problems with this after her death. It is not mentioned in her will, we just have the separate loan agreement. There is no suggestion that there will be any problems, I get on fine with my sibling but you never know and she is considering just giving me the same amount now, equivalent to what is currently outstanding, as she has plenty of savings and can afford to do this, and it would put her mind at rest and she would rather get the pleasure of giving it while she is around to do so. I told her this would exceed the annual tax free gift amount by a considerable amount and assumed it would attract tax as, not to be indelicate, her living another 7 years is not a given, so we abandoned the idea. However, I have heard that if indeed she does pass away within 7 years, this amount would just be counted as part of the estate and as her estate comes nowhere near the total of £1Million IHT threshold (she's a widow) then there would be no tax to pay?  Or should we just leave it til afterwards and together with the loan agreement I just get my sibling to agree to a DoV to ensure that I get the requisite extra amount?  Any advice?

Rodders53

There is no tax on gifts.

IHT may be payable on the Estate (inc any gifts within 7 years) only if the estate exceeds the IHT nil rate bands available at date of death. 

House value needs to exceed £350k to use the RNRB of both parents to get to the £1M (assuming none of NRB was used on first death).

It would 'simplify' the Estate if you are both gifted now and the loan cleared, Especially if that's would make her happy and there's sufficient left for an future Care needs.

Keep_pedalling

I agree with Rodger’s, if she can easily afford this and it would make her happy to do so she should just do it. There are no tax consequences and if if her estate was in IHT territory it would have no negative tax consequences.

Brie

Only thing I can think of is deprivation of assets if she needed help paying for ongoing care but if she's comfortable and has a house that could be sold eventually it's unlikely to be an issue.  You could of course simply accept the money, put it in a savings account and then if/when it's needed give it back.

msb1234

As this is a recorded loan, then when she does die, it will be included in the calculations for probate. Eg
Outstanding loan £50k. Estate value £250k plus £50k from repaid loan = £300k estate. 

Split between 2 = £150k, brother receives £100k, you receive £200k

Keep_pedalling

msb1234 said:

As this is a recorded loan, then when she does die, it will be included in the calculations for probate. Eg
Outstanding loan £50k. Estate value £250k plus £50k from repaid loan = £300k estate. 

Split between 2 = £150k, brother receives £100k, you receive £200k

I think your maths is a bit off there. Both siblings would inherit £150k in the example you give, so the one owing the estate £50k would get £100k and the other £150k 

Linton

The right way to look at it is that the outstading loan is an asset when calculating the estate value.  It is the executor's duty to ensure that the loan is recovered to ensure that the IHT can be correctly calculated  and the estate distributed to the beneficiaries according to the terms of the will.

In this case the will can just say the estate is distributed equally.  There need be no complications or confusion.