Who physically pays the IHT following a large loan?

tobybarker

He is currently with us.....this was an exercise in understanding rather than practical necessity right now.

I asked ChatGPT to try to get a clearer general picture. Sorry if that offends you.

I think I have my answers thanks to all who were kind enough to reply. Not knowing what one doesn't know is worse than knowing what one doesn't know, so I am armed with a little more knowledge as we go forwards. 

Kind regards

Linton

tobybarker said:

chatgpt informs me that if its a loan as such, the estate is liable for the tax; if its a gift, then the recipient pays up. In a nutshell, that's it?

I dont think so.   The estate is responsible for paying any IHT due for gifts totalling up to £325K in the previous 7 years.  IHT on gifts beyond the £325K total is chargable to the recipients.  See https://www.gov.uk/inheritance-tax/gifts

AIUI  A loan made by the deceased not repaid at time of death is part of the deceased's assets at death and so should be liable to IHT.   It is the executor's responsibility to get the debt paid off. How non-recoverable debts are handled for IHT purposes I dont know.

Keep_pedalling

tobybarker said:

So, to summarise, the estate always pays the tax (if it has the funds, which in this case it almost certainly will), regardless of whether its a loan or a gift?

If this is true, why differentiate? I must need to sit in a dark room and think about what you've all kindly said above....

Could you answer my questions about the size of the estate and marital status of the deceased please? I am not being nosy, I just want to establish if the estate even has an IHT liability, a lot of people do not have a good understanding of the available exemptions. 

tobybarker

I cant determine the size of the estate, but somewhere between 500K and a million. He is a widower. Thanks.

Keep_pedalling

tobybarker said:

I cant determine the size of the estate, but somewhere between 500K and a million. He is a widower. Thanks.

If he is also a home owner and inherited everything from his wife then there is unlikely to be any IHT to worry about as with the transferable nil rate bands (NRB) the exemptions could be up to £1M. If the estate is below £650k and the full transferable NRB is available from his wife’s estate then the executors will not need to do Ann IHT return. Over that then one will need to be completed to claim one or both residential NRBs.

tobybarker

thank you - I hadnt ever seen mention of the fact that a return might not need to be done

tobybarker

He is a homeowner, sorry I forgot to say. The entire estate is to be split equally across his 3 kids

Sea_Shell

The beneficiary's need to be prepared for how they might react if the person who received the "loan" declares that, in fact, it was a gift!!

Did anyone sign any paperwork with the mortgage company confirming one way or the other?

Sadly, Inheritances can often bring out the worst in people. 

tobybarker

we shall see!

Keep_pedalling

Sea_Shell said:

The beneficiary's need to be prepared for how they might react if the person who received the "loan" declares that, in fact, it was a gift!!

Did anyone sign any paperwork with the mortgage company confirming one way or the other?

Sadly, Inheritances can often bring out the worst in people. 

Mortgage providers don’t like loans for deposits. If there was a mortgage it is almost certain that the provider insisted on a declaration from father that it was a gift.