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bigduckontax, Accountant
Category: Tax
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My eldest son wishes to borrow £75000 to pay off a mortgage.

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My eldest son wishes to borrow £75000 to pay off a mortgage. He has offered to pay me £200 a month until I die. Then the loan would be repaid to my estate which, in my will, is to be distributed equally amongst my three sons. I would have to rewrite my will to take account of this.
My eldest son pays 40% tax: I pay 20% tax.
How should the tax implications be dealt with, please?
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to assist you with your question. There are no tax implications in your loaning your son 75K and his repaying you. The only tax consideration would be if he were to pay you interest on that loan and then that would be income in your hands for tax purposes and have to be declared on your annual self assessment tax return. On death your entire assets are aggregated and exposed to Inheritance Tax (IT) which at present is at 40% flat rate over 325K. In your case you must live until 2020 when a property worth up to £1m can be left to children or grandchildren completely free of IT. You could protect the position by means of a short term life insurance, but depending on your age premiums might be prohibitive. You should consult a solicitor regarding the wording of a will to take account of the loan to one of your sons and its repayment to the estate on your decease. I do hope my reply has been of some assistance.
Customer: replied 2 years ago.

Thank you for that. From what you say , to avoid tax I would be be well advised to regard the £200 a month as repayment of the loan, with the balance to be repaid when I die. Is that correct?

I would suggest that it is the best way to avoid any tax problems. You could, of course, always give him the money. However, that would create a Potentially Exempt Transfer (PET) in your IT affairs. PETs run off at a taper over five years and in the event of a decease before that time are added back to your estate fir IT purposes and are the first to suffer tax. In the event of your estate having insufficient funds to pay the IT it cascades down to the beneficiary for immediate settlement.
Please accept my apologies for a tardy response to your follow up, I have relatives visiting and was visiting a nearby town with them.
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Thank you for your support.
Tiny amendment: last post paragraph 1 line 2; delete 'fir,' insert 'for.'