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Where Taxpayers and Advisers Meet

Implications of interest free loan

Rows Mum
Posts:12
Joined:Thu Oct 18, 2012 5:39 pm
Implications of interest free loan

Postby Rows Mum » Wed Jun 23, 2021 10:39 am

Hello

If I make an interest free loan (repayable on demand) to my child to assist with a property purchase, is the interest which I've decided not to charge a gift for IHT? If so, how do HMRC determine the value of this gift?

Thank you

RowsMum

strawn
Posts:96
Joined:Fri Jun 01, 2012 10:11 am

Re: Implications of interest free loan

Postby strawn » Wed Jun 23, 2021 11:33 pm

I do hope not; we've done it. I suppose the question is "what would be the commercial interest rate on a loan that must be paid back on demand"? I wouldn't pay a penny for such a loan. Would you?

Another approach is to look at it backwards. You are allowed to gift your son £3k p.a. exempt from IHT (unless you've been gifting money to other people too). You know how big the loan is: you know that he wouldn't pay as much for an on-demand loan as he'd pay for his mortgage loan. Are you in any realistic danger of exceeding £3k in interest forgone?

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Implications of interest free loan

Postby pawncob » Fri Jun 25, 2021 12:48 pm

https://www.choose.co.uk/guide/borrowing-from-friends-and-family-informal-loans.html
With a pinch of salt take what I say, but don't exceed your RDA

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Implications of interest free loan

Postby pawncob » Fri Jun 25, 2021 12:49 pm

https://www.accountingweb.co.uk/any-answers/interest-free-family-loan
With a pinch of salt take what I say, but don't exceed your RDA


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