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Father (88) gifts/loans son money - IHT question

(31 Posts)
howardfh Sat 25-Feb-17 14:13:41

Hi!
Simply this, my father 87 can't drive any more, so he gifted me his car, which I part-exchanged for a new one and he gifted me the balance to pay for the new one. In all, £8500. This is on top of his annual £3000 IHT-free gift.

So, at present, should he die I will have to pay 40% tax on that as house+savings are well above the threshold. No problem with that.

BUT, over the next 12 months I intend to pay him back, hopefully in full.

How will this stand with IHT, can I put on the form that this "gift" was a "loan" and some, if not all, has been paid back, so not due for tax? If not, what can I do??

Has anyone come across this before? I'm sure some of you have made substantial gifts/loans to children, great/grandchildren etc and know exactly what the situation is?
Thanks!!

Cunco Tue 07-Mar-17 09:00:22

Yes, I agree that those in the fortunate position to pay tax should do so or 'pay up and look big', as my Dad would say (although more in the context of buying a round of drinks than tax since he was never wealthy.

I am still unclear about the nitty-gritty of IHT, though.

M0nica Tue 07-Mar-17 10:43:40

Cunco the sentence you highlight deals with money disposed of before you die. For assets still in your estate when you die, it is paid from the estate.

Ana Tue 07-Mar-17 10:50:33

However, if the tax is due on gifts you made during the last seven years before your death, the people who received the gifts must pay the tax due.

If they can't or will not pay, the amount due then comes out of your estate.

That bit's interesting. So someone who's received a gift within the 7 year period can refuse to pay the IHT payable on it...?

Cunco Wed 08-Mar-17 22:35:48

M0nica: Unless I am mistaken, the original question in this thread was about the IHT on a gift before death which is what I have tried to address. For gifts before death, liability to IHT falls on those who received those gifts. However, it is my understanding that, if an appropriate clause is included in the will, the estate can pay the IHT due upon those gifts during life. It seems a sensible way for a person giving money away before death to ensure that the person receiving the gift does not face a tax bill in future.

I notice that the new IHT relief on own homes tapers away to nothing on large estates over £2m. So, for large estates, the IHT exemption remains at £325,000 per person.

I think the new relief was introduced, in part, to protect children living in the family home from having to sell their home to pay IHT when a parent dies. The average house price in the SE is over £300K and, in London, almost £500K so this situation, with just a single £325,000 exemption, could arise.

Cunco Wed 08-Mar-17 22:48:28

Ana: I suppose a person receiving a lifetime gift could have gone broke and, therefore, be unable to pay.

Simply refusing to pay would presumably not remove the liability for the tax. I guess, but do not know, that if the executors could not persuade such a person to pay within a time limit, the estate would have to pay and, if sensible and economic to do so, pursue the debt until it is paid.