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Sam
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Category: Tax
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In 1990 I provided a top-up dormant loan to a relative who

Resolved Question:

In 1990 I provided a top-up dormant loan to a relative who was unable to raise sufficient funds from the building society. The relative has now been taken into care and the property is being sold to cover the costs, when this is completed I will receive the original capital and 24 years of accrued interest. I am aged 77 married and retired, my annual income puts me into the 40% tax bracket (just). The money involved will be approx £50K.
Could you please advise me if there is any way I could minimise my tax burden on this sum.
Thanks in anticipation.
Regards
Wally Mole
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.
Hi
Thanks for your question
Could you advise how much you loaned the relative, and what extra you will get back - in the form of the accrued interest - or is the interest alone £50,000
Thanks
Sam
Customer: replied 3 years ago.

The original loan was £4000 at 12% per annum fixed.

Expert:  Sam replied 3 years ago.
Hi Wally
So the interest will be £46,000?
Is that correct
Thanks
Sam
Customer: replied 3 years ago.

Yes

Expert:  Sam replied 3 years ago.
Hi Wally
Thanks for your response
I am afraid the tax is treated as due the date the interest is paid(so is due on the interest, not the loan figure) so this sadly will fall into the one tax year as the agreed arrangement was that the loan the accrued interest be paid when the property was sold (or perhaps at the relatives passing)
There is no avoiding the charge at the higher rate of tax in this instance, although earlier guidance would have seen me suggesting you put this debt into being owed to your wife or the interest being paid annually (although this second suggestion would only be cost effective IF you had been below thee high rate threshold for earlier tax years)
For you to transfer the debt to your wife's name, in the same tax year as the property is sold, to release funds (from which you are to be repaid) will cause HMRC to take the stance that the transfer to your wife's name, was undertaken merely to evade the true tax position, but a separation of a tax year, from one transaction to the next is looked upon more favourably by HMRC -
Another recommendation would be (if you were not already retired) would be to put the money into a pension plan, as this would then mitigate some of the 40% charge, as you would then be due a further 20% tax relief from HMRC (along with the 20% you would be granted at source by the pension plan) due to you being a higher rate taxpayer.
But I am sorry to say as you are over age 75 - this too will not be possible.
I cannot think of anyway you could mitigate any tax here - for which I am very sorry.
Let me know if you have any follow up questions
Thanks
Sam
Customer: replied 3 years ago.

Many thanks for quick response. I thought it was rather a long shot but I appreciate your expert advice. I am more than happy with the service you have provided.

Regards

Wally Mole

Expert:  Sam replied 3 years ago.
Hi Wally
You are very welcome, I wish I could offer a way to mitigate the high level of tax you are to suffer.
If I could trouble you to rate the level of service I have provided, it would be appreciated, as this ensures I am credited for my time
Thanks and have a great weekend
Sam
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