Who physically pays the IHT following a large gift?

tobybarker

FIL has given a loan of say, £100K to a child to help buy their home. If FIL dies within the 7 years:
1. Does the child have to pay to HMRC  IHT of 40K (its now tied up in a home, so how?!?)
2. If not, does the 100K just get "added" to the estate value, so all beneficiaries effectively share the burden of the IHT ?

Child fully intends on paying the money back (and indeed, has already started to do so) so will no doubt claim that 2. should apply.

Sorry if this is basic stuff but its got me scratching my head

HappyHarry

Well, the child will owe the estate £100k, and the £100k is still part of FIL's estate.

tobybarker

thank you. How can this work if the child just cant get his hands on 100K?

I defer to your better knowledge, but I've just seen this, from moneyhelper.org, suggests the recipient would pay the tax.....

"But if you don’t live more than seven years after you’ve made the gift, they might have to pay Inheritance Tax."

QrizB

tobybarker said:

thank you. How can this work if the child just cant get his hands on 100K?

It'll depend on what repayment terms have been agreed (and ideally documented) for the loan.

It's the estate that's liable for inheritance tax.

tobybarker said:
"But if you don’t live more than seven years after you’ve made the gift, they might have to pay Inheritance Tax."

That is talking about gifts, not loans.

Which is it? A loan or a gift?

Keep_pedalling

HappyHarry said:

Well, the child will owe the estate £100k, and the £100k is still part of FIL's estate.

Sorry but that is rubbish, a gift is absolute so nothing is owed to the estate.

The gift just eats up some of FILs nil rate band and if that means IHT is due then it is payed by the estate. 

QrizB

Keep_pedalling said:

HappyHarry said:

Well, the child will owe the estate £100k, and the £100k is still part of FIL's estate.

Sorry but that is rubbish, a gift is absolute so nothing is owed to the estate.

Despite the title of the thread, OP has also described it as a loan which the recipient has already begun repaying.

tobybarker said:

FIL has given a loan of say, £100K to a child to help buy their home.
...
Child fully intends on paying the money back (and indeed, has already started to do so)

tobybarker

It was deffo intended to be paid back. SO, if a loan, the child has to pay the outstanding amount "back to" the estate, then IHT worked out on the estate as usual, whereas if it was a gift then the child has to pay the IHT?

Keep_pedalling

tobybarker said:

It was deffo intended to be paid back. SO, if a loan, the child has to pay the outstanding amount "back to" the estate, then IHT worked out on the estate as usual, whereas if it was a gift then the child has to pay the IHT?

No the estate pays the IHT regardless of whether it was a gift or a loan. Who inherits the estate?

tobybarker

the child would get an equal share along with his siblings.

So, the child, whether it was a loan or a gift, never gets the tax bill? How does that square with the quote I found earlier (in italics)? Thank you for your help and patience!

Keep_pedalling

Correct. In this case after the estate payers any IHT due  then the residual is divided equally between the siblings but the one with the loan get his minus the outstanding amount.

What is the value of the estate (including the outstanding loan) and what was the marital status of the deceased.