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TaxRobin, Tax Consultant
Category: Tax
Satisfied Customers: 17628
Experience:  International tax
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I have a friend that is looking to lend money in the form

Customer Question

Hi I have a friend that is looking to lend money in the form of a loan note to a private property development company in Australia. The loan will be paid by him to the company in Australia and he will be accruing a quarterly interest payment from them. He is however looking for the funds to be paid directly from The Australian company to his son. If he was to pass away in the next couple of years what would be the inheritance tax implications. Can hmrc trace the income back to his son although he will be receiving the funds directly from the Australian company and tax him? what would be the tax implication on lending the money to the private company in Australia on his estate?
Submitted: 2 years ago.
Category: Tax
Expert:  TaxRobin replied 2 years ago.
HelloUpon his passing, any debts due to the deceased would be investigated to make sure that:The full amount of the outstanding loan (including the interest) has been included in the estate Interest chargeable under the terms of the loan has been received by the deceasedHMRC would ask for a copy of the loan agreement or any settlement or policy connected to itCan HMRC trace that interest back to the son. Yes. In looking at the loan agreement if it states the son is to be paid the interest then that is pretty clear.If it does not then they would expect to see the interest reported by the deceased.If the estate’s worth more than £325,000 then there is generally IHIT to pay. When the deceased has debts those are deducted but this outstanding loan would be an asset.He can gift the interest amount to his son but that amount will be under the 7 year rule. When you value someone’s estate, you must include any cash or other assets they gave away:in the 7 years before they diedat any time if they continued to benefit from it , these are ‘gifts with reservation of benefit’ in Inheritance Tax forms
Customer: replied 2 years ago.
HiJust to be clear if the loan is being made to an unlisted company based overseas would that be included in his estate given the fact the loan could default.If they default the estate would still be expected to pay tax on the money they have lent?
Expert:  TaxRobin replied 2 years ago.

Yes, it would still be included but if the amount is actually uncollectible that would be explained on form IHT416.

The loan would need to have defaulted not just a possibility of defaulting.