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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4972
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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If I give my son say £50,000 and he repays the capital at say

Resolved Question:

If I give my son say £50,000 and he repays the capital at say £100 a month. Would I pay tax on that sum?
If I lived over 7 years and then died what would the inheritance tax liability be on the £50,000 minus repayments?
Submitted: 3 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 3 years ago.

Hello and welcome to the site. Thank you for your question.

First of all .. if you give your son £50,000 and he repays the capital at the rate of £100pm then there is no tax implication as all he is doing is repaying the capital. Tax would be chargeable on any interest he pays on that principal sum as just repaying amount borrowed interest free is tax free.

Secondly, if the sum is a loan to your son and not a gift to him then seven year rule does not come in the equation for inheritance tax purposes.

What ever amount is outstanding becomes part of your estate and provided your estate including this outstanding sum does not exceed the threshold for IHT purposes (currently £325,000), there is no IHT liability. Any amount in excess of the threshold would attract IHT at 40%.

More information on valuing an estate to see if IHT is due can be found here

http://www.hmrc.gov.uk/inheritancetax/intro/basics.htm#3

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

 

Customer: replied 3 years ago.

If I give the sum but he still repays the capital for a time, is that still a "gift" ie can he have his cake and eat it?

Expert:  taxadvisor.uk replied 3 years ago.
Thank you for your reply.

A gift is a sacrifice of a monetary amount for no return and it is unconditional.

The fact that he would be making a repayment over time does not make this sum a gift.
What you could do is to split the sum and call a portion gift and the balance loan.
The tax man is not happy in you have your cake and eating it without tax implications.

I hope this is helpful and answers your question.
Customer: replied 3 years ago.

If he still owes some of the capital when I die, can it just be deducted out of his share of the estate or would he have to actually repay the lump to the estate and then get it back as his share? This is assuming there was enough in the estate for him to be due more than the remaining sum.

Expert:  taxadvisor.uk replied 3 years ago.

Thank you for your reply.

He does not have to physically repay the outstanding sum. It can just be deducted out of his share of the estate. Outstanding sum would be added to the estate to calculate IHT if any,

I hope this is helpful and answers your question.

taxadvisor.uk and other Tax Specialists are ready to help you
Expert:  taxadvisor.uk replied 3 years ago.
I thank you for accepting my answer.

Best wishes.

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