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Buachaill
Buachaill, Barrister
Category: Law
Satisfied Customers: 10252
Experience:  Barrister 17 years experience
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If a loan states after 7 years it does not have to be paid

Customer Question

If a loan states after 7 years it does not have to be paid back does it not become a gift? My wife and I were told to reduce inheritance tax we should give sums of £110k to our three daughters which we did but sadly wrote them as loans without interest, actually gifting them. It has been claimed otherwise!
Submitted: 1 year ago.
Category: Law
Expert:  Buachaill replied 1 year ago.
1. On the date the "loan" does not have to be paid back, that is, after seven years, it then become a gift. So, it is only on the seventh anniversary of he loan that the money given - £110,000 - becomes a gift. So, for the purposes of Inheritance Tax, the seven year time limit before a gift avoids Inheritance Tax only begins to run on the seventh anniversary of the loan. As it takes seven more years for it to become tax free, it is only on the 14th anniversary of the "loan" that the whole thing becomes free of Inheritance Tax.
Expert:  Buachaill replied 1 year ago.
2. The important point is that the initial "loan" is not a gift. This may be where and why it is claimed that it is not a gift. It is only seven years later that it becomes a gift.
Buachaill, Barrister
Category: Law
Satisfied Customers: 10252
Experience: Barrister 17 years experience
Buachaill and other Law Specialists are ready to help you
Customer: replied 1 year ago.

It was indeed a gift as noted from the use of the 7 year tax break. Just our loose use of the word. Something you as a solicitor would pick up on. I regarded it as a gift from day one and still do so not expecting a return on the loan/ gift.

Customer: replied 1 year ago.

I always regarded it as a gift utilising the 7 year tax break. I still do and do not expect or anticipate its return.

Expert:  Buachaill replied 1 year ago.
3. Dear Bernard, you need to be very careful in your use of the correct term. To lawyers, there is a world of difference between a loan and a gift and it is the same with the Inland Revenue. The 7 year tax break simply does not apply to anything called a "loan".
Customer: replied 1 year ago.

But it was a gift.

Expert:  Buachaill replied 1 year ago.
4. If you want it to be a "gift" and treated as a gift, then you need to seek a rectification order in the courts. Otherwise, it will be treated in accordance with the word used - as a loan. So you should see a solicitor and get an application in for an order of rectification.
Customer: replied 1 year ago.

Many Thanks

Expert:  Buachaill replied 1 year ago.

5. You are welcome.

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