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My father is in his late 70's. The loan is to pay off the remainder of our mortgage. We would benefit from the interest saved.
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804As you are having to repay the capital, the only gift that he is making is the interest and at current rmarket rates that would be covered by annual exemptions.
However, as it would be spare income, judging from the fact that he is making the offer, that would be exempt anyway.
If he dies before the 11 years are up, the current value of the outstanding instalments at that time would be part of his estate and so liable for IHT if the total estate was over the limit at the time.
Unless the loan agreement says otherwise, the outstanding instalments would remain to be paid as per the agreement.
Posted on 11 March 2010 |
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410Will his estate come into the IHT bracket? Lots of people worry about this when it is irrelevant...
If his estate does come into the IHT bracket, does he actually need the money back? Has he considered simply giving the money to you? If he can afford this (obviously he doesnt want to leave homself short) then this gift would start to reduce the OHT bill as increasing amounts of it become exempt from IHT and after 7 years it all is. If you have other siblings, he could change his will to reflect the fact that you have had 85k already from him.
This only applies if the money is a gift, not if it is loan.
@Mike As you are having to repay the capital, the only gift that he is making
is the interest and at current rmarket rates that would be covered by
annual exemptions.
mmm that's an odd way to look at it. He is perfectly entitled to give an interest free loan to anyone he wants - it doesn't count as a gift of the interest.
manzanilla
Posted on 12 March 2010 | Love 0 loves
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212Surely if it's a loan ... there's no inheritance issues in terms of gifts.
You're paying interest on the loan (85000/11*12 = 643)... albeit very small ... that's up to him if he wants to not charge enough interest ... he's not giving anything away.
You/he may need to set something up to cater for when he dies ... if he dies one year in ... you'll be repaying his estate for a period of time (until you inherit your share of the estate) ... the executors will make sure that happens.
Then some decision will have to be made as to whether the estate continues to loan you the money ... or you settle the loan in full ... either way you get your share of the estate back anyway.
Are there any others likely to share the inheritance ... are you absolutely sure they're happy with the arrangement too ... it could get nasty if not.
Posted on 12 March 2010 | Love 0 loves
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212And if there are other inheritors involved ... get the legal paperwork done now whilst everyone is still alive.
Posted on 12 March 2010 | Love 0 loves
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0Thanks Guys. Helpful answers all.
The situation is that it's a loan to be repaid over 11 years. My dad would rather I benefit from not having to pay interest on my mortgage - he gets very little interest on his savings anyway. I would pay him back by direct debit at £650pm until repaid - or he dies. He then benefits from a regular income without worrying about the bank going bust.
My mother is deceased and I only have one sibling - my brother. He is both a trustee of my father’s estate and an executor whilst I am an executor. My brother benefited from a similar arrangement when he and his family moved into a house with my father and mother (who had Parkinson’s). My father loaned him for his share of the mortgage which he has nearly paid back. I have no worries that he will want any remaining some back as he is likely to inherit the other half of the house.
This is an informal arrangement. My father has said that if he dies then what's left is mine. My father’s whole estate would exceed the IHT threshold. I figure, therefore, that what is left after his death becomes 'gifted' at that point and would then be subject to IHT. Or, could I claim that the whole £85k was a gift if he died after 7 years and that I was simply paying him £650pm as a form of maintenance? I'm giving myself a headache...
Posted on 12 March 2010 | Love 0 loves
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804I am sure that HMRC would consider it as a 'Gift with Reservation' and disqualify the Gift aspect if set up as you suggest.
It might be possible to break it into 2 portions in order to qualify. The first portion would be for him to 'buy' an annuity from you for £650 per month until the earlier of his death or 11 years (actually 10,9 years). If the appropriate Purchased Life Annuity Capital Content rate was used for the purchase, there would be no interest element to worry about tax-wise.
That would die with him and you would profit from his earlier death rather than receiving the balance as a gift.
The second portion would be the balance of the £85,000 which would be a straight gift at the start and would be IHT free in 7 years.
You would need it all drawn up legally.
Mike
Posted on 12 March 2010 | Love 1 love
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0Thanks Mike. I'll look into your suggestions.
QG
Posted on 17 March 2010 | Love 0 loves
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