Inheritance Tax - Gifting Property to Child - Loan???

[22s]

Hi there,

In the situation where a parent wants to gift a child £600k to purchase their first property outright (no mortgage):

I know there is the 7 year rule that states if the parent dies within 7 years of the gift being given, then IHT is due according to how long ago the gift was made. After 7 years, no IHT is due.

Is there ANY advantage (tax or otherwise) of the £600k being given as an interest-free loan, repayable only on sale of the property? Assuming the parent has no desire to have the money back (if the child sold the property, the parent would like the child to be able to just take the proceeds and buy the next one).

I'm getting conflicting answer on whether the money should be an interest-free loan or gift (which will be rectified shortly with some professional advice) but wondered if anyone knew the answer off-hand.

Thanks in advance!

[springfan62]

A loan remains part of your estate for IHT whereas a gift is gone completely after 7 years.

So from an exclusively IHT point of view the gift is likely to be more effective

[LooneyTunes]

22s said:

Is there ANY advantage (tax or otherwise) of the £600k being given as an interest-free loan, repayable only on sale of the property?

The child not having been given the money outright could turn out to be handy if they’re at risk of making life choices, especially regarding partners, that don’t work out as hoped at the outset?

[lost in espace]

LooneyTunes said:

The child not having been given the money outright could turn out to be handy if they’re at risk of making life choices, especially regarding partners, that don’t work out as hoped at the outset?

I saw a case in the paper which was exactly this, the son had been loaned the money and died. Wife left with nothing. Parents insisted on return of money.

How about some life insurance to cover the IHT.

[LooneyTunes]

lost in espace said:

LooneyTunes said:

The child not having been given the money outright could turn out to be handy if they’re at risk of making life choices, especially regarding partners, that don’t work out as hoped at the outset?

I saw a case in the paper which was exactly this, the son had been loaned the money and died. Wife left with nothing. Parents insisted on return of money.

How about some life insurance to cover the IHT.

I was thinking more about the parent inadvertently giving £300k to someone their child no longer liked!

[22s]

Thanks all - very interesting about the partner point, I hadn't considered that. Food for thought!

[Countdown]

Coincidentally I was reading up on this today for a similar reason. One option I hadn't considered was buying the property in Trust for the child

https://www.cashfloat.co.uk/blog/money-saving/buyi...

Not sure if that helps? It looks like a legitimate way around CGT and IHT.

[Armitage.Shanks]

I think this is a question for the sticky IM thread given it involves gifting and potential trusts.

Posing a question on the other thread completely changed what I intended to do.