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Where Taxpayers and Advisers Meet

Loans/debt for IHT estate valuation

PPitstop
Posts:6
Joined:Thu Feb 10, 2022 4:47 pm
Loans/debt for IHT estate valuation

Postby PPitstop » Tue Apr 26, 2022 10:02 am

Hi Everyone,

I am looking for some advice. I recently gifted my flat to my son (I do not live there). To do so I wrote a gift deed. I got a surveyor in to determine the value for CGT and he said I should also keep the report for IHT purposes.

I had never thought about IHT. I realised there is an issue in that my son paid off the last of my mortgage on that flat about seven years ago (£40,000) and we agreed I would pay him back but we were never in a hurry. How can I deduct/reflect this in my estate value? Do I have to keep the loan 'open' and write a retrospective contract? Or add an extra covering letter to the gift deed to say the gift was value less £40,000?

We do not have much evidence as it was an oral agreement without a written contract (but he does have the transfer evidence of payment made from his bank to mortgage company for redemption).

Is it too late to put this into writing?
Ta,

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Loans/debt for IHT estate valuation

Postby maths » Tue Apr 26, 2022 4:50 pm

I assume the legal title was in your name only as was the mortgage?

The legal title could only be transferred into your son's name with the consent of the mortgagee which probably may not have been forthcoming.

Did you transfer legal tile into your son's name or just a beneficial interest in the property with you retaining legal title?

One option would have been for son to lend 40k which you used to pay off the mortgage. You then transfer legal title to son with part of the property's value treated as repayment of the 40k loan and the balance a simple gift.

PPitstop
Posts:6
Joined:Thu Feb 10, 2022 4:47 pm

Re: Loans/debt for IHT estate valuation

Postby PPitstop » Thu Apr 28, 2022 11:12 am

Mornin', thanks for replying maths.

The mortgage was held in my name only from 2000 until 2015, which is when my son paid it off early for me. After which there was no mortgage. I only gave the flat to my son in 2022 - a couple of months ago. The gift was full legal title transfer (including any beneficial interest). The paperwork is still with the land registry..

The money/loan to pay off the mortgage was never 'secured' against the flat. I just never got around to paying him back - I would have done if I sold the flat. My son paid off the mortgage in 2015 because there was a shortfall between the annuity and mortgage value.

Having been given he flat, he will not ask for the money back now! But I also don't want him paying IHT on the amount he 'added to my estate'. Seems unfair.

Would I need to redraft the gift deed? Or can I add an addendum or something like that? Maybe just keep it as an outstanding loan?

Ta v m

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Loans/debt for IHT estate valuation

Postby maths » Thu Apr 28, 2022 5:34 pm

The paying off by your son of the outstanding mortgage for IHT in 2015 is a PET. If son survives for 7 years thereafter no IHT will arise.

The only IHT which may now occur is if you die within 7 years of gifting the flat; the gift from you is also a PET.

The Deed of Gift is fine.

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Loans/debt for IHT estate valuation

Postby AGoodman » Thu Apr 28, 2022 5:52 pm

If the payment to you in 2015 was genuinely a loan then you can still document it now by reciting the facts and the terms of the loan (presumably interest free, and when must it be repaid) and you both signing it.

You have said it had nothing to do with the gift of the property in 2022 so leave the documents there alone.

PPitstop
Posts:6
Joined:Thu Feb 10, 2022 4:47 pm

Re: Loans/debt for IHT estate valuation

Postby PPitstop » Fri Apr 29, 2022 11:50 am

Thanks very much maths and AGoodman!

My concern was lowering my estate's value by the amount of the loan just in case something happened to me over the next 7 years. I think this would save him paying £16,000 on money that was his to begin with. I am probably(hopefully) worrying about nothing, but you can never be too prepared.

I will put the loan and evidence of it in writing and then let my executor sort it out!


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