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Who physically pays the IHT following a large loan?
tobybarker
Posts: 11 Forumite
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
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
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Comments
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Well, the child will owe the estate £100k, and the £100k is still part of FIL's estate.
I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.0 -
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."0 -
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?N. Hampshire, he/him. Octopus Intelligent Go elec & Tracker gas / Vodafone BB / iD mobile. Kirk Hill Co-op member.Ofgem cap table, Ofgem cap explainer. Economy 7 cap explainer. Gas vs E7 vs peak elec heating costs, Best kettle!
2.72kWp PV facing SSW installed Jan 2012. 11 x 247w panels, 3.6kw inverter. 35 MWh generated, long-term average 2.6 Os.1 -
Sorry but that is rubbish, a gift is absolute so nothing is owed to the estate.HappyHarry said:Well, the child will owe the estate £100k, and the £100k is still part of FIL's 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.1 -
Keep_pedalling said:
Sorry but that is rubbish, a gift is absolute so nothing is owed to the estate.HappyHarry said:Well, the child will owe the estate £100k, and the £100k is still part of FIL's 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)N. Hampshire, he/him. Octopus Intelligent Go elec & Tracker gas / Vodafone BB / iD mobile. Kirk Hill Co-op member.Ofgem cap table, Ofgem cap explainer. Economy 7 cap explainer. Gas vs E7 vs peak elec heating costs, Best kettle!
2.72kWp PV facing SSW installed Jan 2012. 11 x 247w panels, 3.6kw inverter. 35 MWh generated, long-term average 2.6 Os.3 -
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?0
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No the estate pays the IHT regardless of whether it was a gift or a loan. Who inherits the estate?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?0 -
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!0 -
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.0 -
Is it documented as a loan with a mortgage provider (if any?). If it is paid back out of inheritance there be any IHT to pay?0
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