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bigduckontax
bigduckontax, Accountant
Category: Tax
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a family friend wants to pay off my mortgage of 172,000 what

Customer Question

a family friend wants to pay off my mortgage of 172,000
what tax would i pay and how is best to go about it...he is 83 and wants to do it before he dies
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.
You would pay none at all, gifts are outside the scope of UK taxation.
But soft, your friend, by making the gift, creates a Potentially Exempt Transfer (PET) in his estate. PETs run off on a taper over 7 years and in the event of your friend's death are added back to their estate and are the first to suffer Inheritance tax (IT). If the estate is unable to meet the IT on the PET the tax cascades down to the beneficiary for immediate payment. However, IT does not kick in until an estate reaches 325K and if your family friend had a spouse who predeceased them and they did not use their 325K allowance or only part thereof then the balance can be added to the survivors allowance thus enhancing same raising the possible exempt level to 650K. The traditional defence to this is a life insurance, but at your friend's age premiums may be prohibitive.
I do hope I have helped you with your question.
Customer: replied 3 years ago.

yes his wife died so exempt IT 650.

If he dies in the next seven years then the estate will suffer what % of tax. ??? His estate at the moment is 400,000 ???

so this doesnt impact on me unless his estate can handle IT if he dies before 7 yrs ??

I am self employed and a business owner and I don't want it to impact on what I am doing !

Expert:  bigduckontax replied 3 years ago.
Right then, if his estate is 400K that is well below the 650K allowance he has so there will be no IT, even were he to give you a 172K gift in the interim.
You are correct in your surmise that with the figures you have quoted there will be no danger of the PET cascading down for you to meet.
For your information IT is levied at a flat rate of 40% on all assets over the exempt limit.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 3 years ago.
Thank you for your support.

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