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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4996
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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We are looking to buy a house and my son has offered to lend

Resolved Question:

We are looking to buy a house and my son has offered to lend me part of the purchase price interest free.
He does not want the loan to be repaid until the property becomes available to sell via our estate after our deaths, but would want a share of the gain between selling & purchase price in proportion to his loan against the original purchase price.
The remaininig balance of our estate would then be split equally between him and our other two sons.
Can this be set up so that the only tax liability would be inheritance tax?
Submitted: 1 year ago.
Category: Tax
Expert:  taxadvisor.uk replied 1 year ago.
Thank you for your question...It is your son's intention to give you money as part of the purchase price.It is possible to set up an arrangement whereby the only tax liability as far as your estate goes is inheritance tax. Provided the property remains your main residence for over the whole period of ownership then there would be no CGT payable on its sale during your lifetime. If the property becomes part of your estate and the eventual sale price exceeds probate value at the time of death, this may give rise to capital gains tax. This CGT liability would fall on the beneficiaries when the property is sold. You could stipulate how your legacy is distributed in the will taking into account monies given to you by your son and the potential gain on sale.You would need to discuss this with your lawyer/will writter.For your son - if he does not wish this to be treated as a loan to you, then it would be deemed a potentially exempt transfer for his IHT purposes and the seven year rule would apply to the sum gifted. Provided he survives for 7 full years after making the gift, the amount would be excluded from his estate for IHT purposes. 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 1 year ago.
Does the 7 year gift rule apply to ourselves as well. In other words, If we both died before the 7 years was reached, would there be a tax liability on this gift?
Expert:  taxadvisor.uk replied 1 year ago.
Thank you for your reply.
The seven year rule applies to the person making the gift and not person receiving the gift.
I hope this is helpful and answers your question.
Customer: replied 1 year ago.
Thank you for your reply - just to confirm that I have the correct understanding, as long as my son survives for the full 7 years after the gift is made, the gift will not be part of his estate even though the gift has effectively been repaid via our estate before the 7 years has been reached.
Expert:  taxadvisor.uk replied 1 year ago.
Thank you for your reply..
Your understanding is not quite correct.. if you were to die within the seven year period and he had received a legacy from your estate, then that legacy would form part of his wealth.. in other words one set of money would be replaced with another,including the gain per agreed proportions.
I hope this is helpful..
taxadvisor.uk and other Tax Specialists are ready to help you
Customer: replied 1 year ago.
You have answered my question - I will sign off now and thank you for your help and advice.
Expert:  taxadvisor.uk replied 1 year ago.
I thank you for accepting my answer.
Best wishes.