Gift/loan from parents to buy property

saba · Postby **saba** » Tue May 03, 2005 2:55 am

My father has contributed 80k towards my first home. He is in his late 60s and I am worried about the IHT consequences. Would it be advisable to have a loan agreement drawn up and if so, would I have to make repayments to him on a regular basis? If he died within 7 years would i be taxed on the balance of the loan repayable or would i continue making loan repayments to his estate or would the loan automatically transfer to one between me and my mother?

King_Maker · Postby **King_Maker** » Tue May 03, 2005 3:20 am

I think it would be a good idea if supporting documentation was drawn up.

It is not clear (at least to me) whether the Â£80,000 is a gift or loan - which is crucial to ascertain the tax implications.

saba · Postby **saba** » Tue May 03, 2005 3:32 am

It was initially a gift, but if it is more sensible to treat it as a loan, we will do so. The problem is that I can not afford to make any large repayments as I have a mortgage. Would it be sufficent to have an agreement that I would make repayments in the future?

Instinctive · Postby **Instinctive** » Tue May 03, 2005 8:45 am

Is he likely to die within 7 years? If he survives the 7 years, then there is no IHT liability attaching to this gift. If his total assets, including the gift, is within the nil rate band, then there will be no IHT issues even if he dies within 7 years.

It is not a good idea to lable this gift as a loan as it could cause complications in the future.

Ramnik

As it is

Paul Varjak · Postby **Paul Varjak** » Tue May 03, 2005 2:13 pm

You have not said what the value of your fatherÂ’s estate is. The current nil rate band for IHT is Â£275,000 and if his total estate plus the gift is no more than this, you have no worries (assuming he has not made any other sizeable gifts to anyone in the last seven years).

If that does not answer your question, perhaps you could say what the value of your parentÂ’s joint estate is and how this is divided between your mum and dad.

saba · Postby **saba** » Wed May 04, 2005 2:17 am

They will both be above the nil rate band when their estate is divided due to the value of their home.

Should we treat it as a gift and hope that it doesn't fall within the iht rules? Or is there anything simple that can be done to avoid this?

Paul Varjak · Postby **Paul Varjak** » Wed May 04, 2005 5:05 am

If it is treated as an interest-free loan then whatever is outstanding on the loan will be part of his estate on death and liable to IHT.

So, if you never make repayments on the loan, IHT will be liable on the full Â£80,000 no matter how long your father lives.

If it is treated as a gift, IHT will be escaped on the gift provided he lives at least 7 years.

If your dad puts the loan repayments into savings IHT with not be avoided - in fact this would increase any IHT due.

You say it was your dad that gave you the money. Would it be better to treat it as a gift from your mum or, perhaps, both of them?

King_Maker · Postby **King_Maker** » Wed May 04, 2005 5:49 am

saba,

Are you aware who are the main beficarie(s) of your parents' Estates? If it's you, then it does not really if it's loan - unless he changes his mind at a later date.

saba · Postby **saba** » Wed May 04, 2005 5:55 am

The estate would be divided up between me and my two sisters.
How would this make a difference?

King_Maker · Postby **King_Maker** » Wed May 04, 2005 5:59 am

It could have made a difference, if you "inherited" your own loan.