Hi all
Hope you can help and would be most grateful as I've been trying to research the answer to this for the last 30 hours with much confusion and little sleep.
My father is a single man of 62 with a decent value. His will splits everything down the middle between my sister and I. He owns a rental property and also his own house, which is part mortgaged.
He currently has a 6 figure sum of money invested in a plan that pays him interest monthly and he uses the money to live off together with the rental income. It's a modest amount but enough for a single man. However, following a health scare (now under control) he feels he would like to withdraw the money from the plan and split it between my sister and I for her first property and my property upsize.
He has hoped to be able to simply gift us the money and live long enough for it to fall outside the estate.
The problem is this. He needs to realise the same or similar income every month that he currently benefits from with the plan. After making several suggestions on my part, including joint mortgages and paying him rent etc. I decided that he would pay income tax on this and it seemed a silly idea. So if he loans us this money interest free, we repay him every month the amount he needs to live, thus he spends it on his household bills, food, holidays and the money gradually also falls out of his estate. Good? Well no... here's why I am concerned. If he dies before we pay it back, will the debt will then become part of the estate again? And since we are the both the borrowers and the beneficiaries, do we then owe the money to ourselves? Does this cancel itself out or will it still be part of the estate and therefore included in the bill for IHT?
The question isn't just Gift or Loan, because if he didn't need the monthly income it would definitely be a no brainer - Gift! But if the only alternative is Loan, are we shooting ourselves in the foot in the long run? Sorry it's complicated. Please feel free to ask questions!