Does an unpaid off loan become part of the estate?

[gawj1512]

from my dad's aunts husband, to my dad's aunt

That sounds like a transfer between spouses, so there is no IHT there.

We wouldn't repay him before he dies

How do you know? If say there is £500,000 and you repay £25,000 a year, it will last 20 years. What happens then? If you KNOW he won't survive 20 years but might live for ten, he might consider giving £250k outright and loaning £250k.

Or he could leave it all to charity.

The aunt wasn't married to him, they were common law. We wouldn't repay £25k a year, it would be £500 per month as it's all we can afford. He wants to just give it to us but he needs some money to live off. Not much just some. I see what you mean about splitting it between gifting and loaning. He may well survive 20 years.

[gawj1512]

Did your dad's aunt or mum die within the last two years? Or within 5 years of eachother?

2004
2006
2009

[gawj1512]

If your primary concerns are avoiding IHT and maintaining your fathers income, special trusts can do this for you in a very easy to manage way. If the legacies are something that you would benefit from and your father would enjoy seeing during hos lifetime, paying back your father gradually seems like a reasonable idea. As has already been stated, the outstanding loan is added to your fathers estate, and is thus going to be taxable for IHT once more.

We were going to put it in a Welfare Preservation Trust but as we wouldn't be able to touch it, we decided against it. Dad wants us to spend it on our homes, for my sister's first mortgage and our move to a bigger house. Is there a way he could put into a mortgages, keeping our houses in our names and then we pay him rent? So the money is gifted to us still? I know he'd pay income tax on that. It feels like we're got by the balls whichever way we turn!

[tax_schmax]

In life, you can seldom have your cake and eat it too. Your father wants to give you money to spend on homes, yet keep the income from it. If you give something away and retain a benefit from it, it is generally know as "a gift with reservation of benefit". i.e. not a gift at all. Another way to look at it would be that your father is deliberately depriving himself of capital necessary for his maintenance and survival. He has the money he needs to survive, if he gives it away, he will suffer. It seems like he needs the funds more than you or your sister. If for any reason you could not repay the loan, severe hardship could be forced upon your father.

My suggestion for you is this; has your father considered if restructuring his assets would generate more income, thus freeing up capital to make a lifetime gift to you and your sister? Rental properties and investment plans are two options. You should see a financial planner with your father. You can discuss maximising his income from a smaller pot of money, allowing the residual to be given to you and your sister in a simpler way.

[Lee Young]

As then deaths occurred within 5 years of each other quick succession relief should have applied to lessen the impact of the assets being "taxed again to IHT".