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bigduckontax, Accountant
Category: Tax
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I have a question on inheritance tax. My father died in 2001

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I have a question on inheritance tax.
My father died in 2001 me and my 3 brothers inherited £242k from him (the nil rate band at the time). In Dec 2002 we then lent the money back to my mother, and recorded this in a simple loan agreement. The loan was interest free and there was no time limit on repayment.
In May 2002 (i.e. after my father's death, but before the loan agreement) my mother gave £25k to each of us, and then in Feb 2003 (ie after the loan agreement) my mother gave us each a further £35,500. This was not intended as a repayment of the loan.
My mother has recently died and I am sorting our her finances. Will the outstanding loan be allowed as a deduction against her Estate for IHT purposes?

Hello John, I am one of the experts on Just Answer and pleased to be able to help you with your question.

Yes it will, it will reduce your late Mother's exposure to Inheritance Tax (IHT) which is at 40% on assets over 325K. By the way, is there a family home involved in your Mother's estate, willed to children? .

Customer: replied 10 months ago.
Thanks, ***** ***** has a property which will be left to us.

I don't wish to be pedantic, but is it the family home?

Customer: replied 10 months ago.
I am not sure what the specific definition of family home is, but it is her sole house that she bought in 2005 and has lived in since then. None of us children has lived there.
Customer: replied 10 months ago.
My specific concern about the loan was whether HMRC would consider gifts made after the loan to be repayments of the loan.

Your Mother's IHT threshold is increased to 450K, better than a poke in the eye with a sharp stick!

How will HMRC know, the gifts are outside the Potentially Exempt Transfer (PET) seven year add back time frame?

I do hope that you have found my reply of assistance.

bigduckontax and other Tax Specialists are ready to help you
Customer: replied 10 months ago.

Delete 'girl' insert 'gifts.'

Thank you for your support.