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The reason that the £26,500 is being included in the probate forms is because that part of the original loan which was forgiven by your late mother became a gift within seven years of her death. Unless your mother made gifts in excess of the nil-rate band for IHT of £325,000 (or up to £650,000 if she was a widow and her late husband did not fully utilise his nil-rate band) in the seven years before her death, your gift will escape IHT as the nil-rate band is first used against gifts made in the seven years before death.
As far as your personal tax situation is concerned, you don't need to disclose the gift in your tax return as it isn't taxable on you.
I hope this helps but let me know if you have any further questions.
No, you don't.
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