Inheritance Tax

Markaellis

I currently am fortunate enough to have spare cash but at 64 don’t know how many years I’ve got left. It’s likely my estate will be more than £1m but less than £2m. If I gift my two children £100k each now & live the required 7 years but at some point need to borrow money from my children & pay interest on the loan, is this still free of inheritance tax when the loan is repaid from my estate. Given I’m paying interest I’m hoping that it’s not a gift with reservation? Thanks for your thoughts.

tacpot12

It depends on whether you require your children to lend you some money if you give them a gift. If it is entirely up to them whether they lend you money when you need need, it then you are not reserving any benefit. It doesn't matter if you are paying interest or not, if you give the money away with a condition attached to it, you are reserving a right to call on the money. 

It would be as well for you to consider your relationship with your children and how you might feel if the spend the money and can't lend you anything when you need it.  

Keep_pedalling

Presumably the bulk of your estate is made up of your home, so if you’re likely to need a loan in the near future yo7 can’t really afford to give so much cash away. There is of cause the risk that your children might not be able to lend you money if they have spent the gifts. 

If you need a loan soon after gifting HMRC may consider this a a contrivance  ant that you are still benefiting from your gifts. 

Brie

what if children get married, have children, divorced, married and then die (hopefully not).  All of these things will effect what might happen with your money.  

poseidon1

If initial gifts to children are conditional that at some point they will ( if need be ) lend back to you, then certainly HMRC could argue that the intial gifts were subject to a reserve benefit to re-borrow 

So the intial gifts would have to be made with absolutely no strings attached to get the 7 years running.

Subject to that, if the children in later years ( after the 7 years ) were  out  of the goodness of their hearts to make documented loans to you subject to a market rate of interest payable, then no reason why such loans would not be a deductible debt against your estate, especially if the children were to lodge legal charges against the home to secure the loans. The children may of course have income tax to pay on their loan interest in the meantime. Unless you were then to proceed to expend the loaned monies substantially, the IHT position would remain neutral.

However I would question the wisdom of this approach since you are gambling on your children being both willing and able to help you in this way, after quite an appreciable passage of time. Alot of things could go pear shaped for them   (divorce, loss of jobs, bankruptcy  - you get the picture).

Better to gift your children lesser sums outright,  say £25k  each,  which you are satisfied you will never need , and then rinse and repeat such smaller gifts every 7 years.  Also don't forget your respective £3000 annual gifts exemptions which require no survival period.

Best to keep things relatively simple, one can become quickly unstuck trying to implement overly complex maneuvering.

Markaellis

some great comments, many thanks. It’s still early days in my thought process but will definitely take this into account.

Madeinireland101

Why not just give them a series of interest free loans - then assuming you are relatively easy on pay back terms you can get a repayment from them if you then need it again. This would protect you if something happens in their lives - death, divorce, bankruptcy etc. As time progresses and you become more confident of your position you can  then convert loans into gifts.

Jeremy535897

Madeinireland101 said:

Why not just give them a series of interest free loans - then assuming you are relatively easy on pay back terms you can get a repayment from them if you then need it again. This would protect you if something happens in their lives - death, divorce, bankruptcy etc. As time progresses and you become more confident of your position you can  then convert loans into gifts.

That wouldn't reduce the value of the estate at all if they were repayable on demand, and would result in a messy to calculate lifetime gift if they weren't.

Madeinireland101

Jeremy535897 said:

Madeinireland101 said:

Why not just give them a series of interest free loans - then assuming you are relatively easy on pay back terms you can get a repayment from them if you then need it again. This would protect you if something happens in their lives - death, divorce, bankruptcy etc. As time progresses and you become more confident of your position you can  then convert loans into gifts.

That wouldn't reduce the value of the estate at all if they were repayable on demand, and would result in a messy to calculate lifetime gift if they weren't.

Yes you are absolutely right. I have a slight variation to that plan that would correct the issue but it’s probably not a solution I should share here.