[Help] Legal loan question

essbee1 · Jul 20, 2022

Hi all,

I had a legal question that I'm hoping you may be able to help with.

My Dad (who is not in good health) borrowed some money off his brother
about 8 years ago to help with a small house extension. No financial agreement
was put in place. I'm told the Govt. without that agreement will consider
that "sum" investment as taxable on his passing, since it is not a liability.

Do I need to get a solicitor to draw up a letter saying that the money
was given and do both parties (Dad and brother) have to be in the same
room at the same time to sign it? That would stop it being taxed at 40%.

btw I don't mind paying taxes, but I'm not handing over free of charge cash
to the current bunch so they can spunk it up on parties.

Thanks,

:amex:

UTA

Herr Tubthumper · Jul 20, 2022

essbee1 said:
Hi all,

I had a legal question that I'm hoping you may be able to help with.

My Dad (who is not in good health) borrowed some money off his brother
about 8 years ago to help with a small house extension. No financial agreement
was put in place. I'm told the Govt. without that agreement will consider
that "sum" investment as taxable on his passing, since it is not a liability.

Do I need to get a solicitor to draw up a letter saying that the money
was given and do both parties (Dad and brother) have to be in the same
room at the same time to sign it? That would stop it being taxed at 40%.

btw I don't mind paying taxes, but I'm not handing over free of charge cash
to the current bunch so they can spunk it up on parties.

Thanks,

UTA

I cannot help you with your main question other than to say consult a solicitor, but I can tell you two parties do not need to be in the same room to sign a contract.

essbee1 · Jul 20, 2022

Thank you HT.

Blue Valkyrie · Jul 20, 2022

I thought that 8 years was beyond the time "gifts" are taxable anyway, but I haven't researched it for years and don't trust my vague memory.

essbee1 · Jul 20, 2022

Blue Valkyrie said:
I thought that 8 years was beyond the time "gifts" are taxable anyway, but I haven't researched it for years and don't trust my vague memory.

Hi BV

It may well have been a lot later than that - but point taken. Ta.

Simster · Jul 20, 2022

I'm no lawyer, but I simply can't see how that is not taxable I'm afraid. Otherwise surely you'd just have people with terminal illnesses drawing up contracts in those final months insisting that they had borrowed money from family members. Actually I can think of one caveat to that - if there is evidence of a large sum of money being transferred from one brother's account to the other's account all those years ago. :shrug:

Nobby Cybergoat · Jul 20, 2022

Blue Valkyrie said:
I thought that 8 years was beyond the time "gifts" are taxable anyway, but I haven't researched it for years and don't trust my vague memory.

That's still right. Anything given away more than 7 years ago will be an exempt transfer.

OP, i'm unclear, was it a gift, or a loan to be repaid? If so is it repaid?

essbee1 · Jul 20, 2022

Simster said:
I'm no lawyer, but I simply can't see how that is not taxable I'm afraid. Otherwise surely you'd just have people with terminal illnesses drawing up contracts in those final months insisting that they had borrowed money from family members. Actually I can think of one caveat to that - if there is evidence of a large sum of money being transferred from one brother's account to the other's account all those years ago.

Hi Simster. I see your point. But my Dad's bank accounts would show the transfers and dates etc - you are correct. The trouble is that without the
formal bit of paper saying for what purpose it was used, Boris' fopping tax vulchers could claim it was used for
holidays, cars, drugs etc etc etc. and we'd have no come back.

essbee1 · Jul 20, 2022

Nobby Cybergoat said:
That's still right. Anything given away more than 7 years ago will be an exempt transfer.

OP, i'm unclear, was it a gift, or a loan to be repaid? If so is it repaid?

Loan. Unpaid to date.

Blue Valkyrie · Jul 20, 2022

I'm actually not clear as well.

If it was a gift it is too old to be taxed on the gifter's estate.

If it is a loan then it needs to be repaid from the recipient's estate - if the loaner doesn't write it off.

I'm not sure where inheritance tax on the recipient's estate comes into it but maybe I've missed the point.

nwgull · Jul 20, 2022

Simster said:
I'm no lawyer, but I simply can't see how that is not taxable I'm afraid. Otherwise surely you'd just have people with terminal illnesses drawing up contracts in those final months insisting that they had borrowed money from family members. Actually I can think of one caveat to that - if there is evidence of a large sum of money being transferred from one brother's account to the other's account all those years ago.

I think that's why the limit is in place that no inheritance tax is due on any gifts you give but only if you live for 7 years after giving them.

essbee1 · Jul 20, 2022

Blue Valkyrie said:
I'm actually not clear as well.

If it was a gift it is too old to be taxed on the gifter's estate.

If it is a loan then it needs to be repaid from the recipient's estate - if the loaner doesn't write it off.

I'm not sure where inheritance tax on the recipient's estate comes into it but maybe I've missed the point.

Sorry. I'll try to clarify. The money was used to help build the extension, which is part of my Dad's estate
when he passes. It was probably not long enough ago to be exempt through the 7 year thing (my poor info. - sorry).
So when his estate is valued upon his passing, the loan on the extension (unpaid) is currently part of his estate and therefore taxable. If the loan
was agreed and legally recognised however, it would be considered a liability on the estate and not taxable (I'm told).

dazzer6666 · Jul 20, 2022

Blue Valkyrie said:
I'm actually not clear as well.

If it was a gift it is too old to be taxed on the gifter's estate.

If it is a loan then it needs to be repaid from the recipient's estate - if the loaner doesn't write it off.

I'm not sure where inheritance tax on the recipient's estate comes into it but maybe I've missed the point.

Correct - a PET becomes exempt after the giver survives 7 years (and is tapered up to that point), but the circumstances as described are the wrong way round (if it was a gift) - it would need to be a gift from a deceased individual (essentially reducing the value of the estate), not a gift to him.

Not sure how that taxation aspect of this works though - the loan could be repaid from the estate (may be sufficient to put something in writing now confirming the amount, dates etc - probably worth checking with a solicitor whether retrospective documentation would be effective, and how formal it needs to be), my understanding is that it would only be interest on any loan that would be taxable (at the recipient - ie the brothers - marginal rate) when received.

essbee1 · Jul 20, 2022

Thanks Dazzer, very useful.

dazzer6666 · Jul 20, 2022

essbee1 said:
Sorry. I'll try to clarify. The money was used to help build the extension, which is part of my Dad's estate
when he passes. It was probably not long enough ago to be exempt through the 7 year thing (my poor info. - sorry).
So when his estate is valued upon his passing, the loan on the extension (unpaid) is currently part of his estate and therefore taxable. If the loan
was agreed and legally recognised however, it would be considered a liability on the estate and not taxable (I'm told).

...but the loan is a 'negative' on the value of the estate (ie reduces the value of the estate because it would need to be repaid) so how can that be taxed ? I think you mean (as per your last point) the loan ISN'T included within the estate so tax is being levied on a higher value than it should be.....

essbee1 · Jul 20, 2022

dazzer6666 said:
...but the loan is a 'negative' on the value of the estate (ie reduces the value of the estate because it would need to be repaid) so how can that be taxed ? I think you mean (as per your last point) the loan ISN'T included within the estate so tax is being levied on a higher value than it should be.....

Correct. But I need legal proof of that loan and that it was used for that purpose to reduce the tax burden.

dazzer6666 · Jul 20, 2022

essbee1 said:
Correct. But I need legal proof of that loan and that it was used for that purpose to reduce the tax burden.

I think (don't take my word for it though) you should be able to put a retrospective loan agreement in place that would solve the issue - there are sample agreements online but better to get a solicitor to knock one up

essbee1 · Jul 20, 2022

dazzer6666 said:
I think (don't take my word for it though) you should be able to put a retrospective loan agreement in place that would solve the issue - there are sample agreements online but better to get a solicitor to knock one up

cheers mate.

Thunder Bolt · Jul 20, 2022

essbee1 said:
Hi Simster. I see your point. But my Dad's bank accounts would show the transfers and dates etc - you are correct. The trouble is that without the
formal bit of paper saying for what purpose it was used, Boris' fopping tax vulchers could claim it was used for
holidays, cars, drugs etc etc etc. and we'd have no come back.

Are there any receipts for the work done, ie builder, plasterer etc? The dates would tally with the bank statement.

Tim Over Whelmed · Jul 20, 2022

essbee1 said:
Hi Simster. I see your point. But my Dad's bank accounts would show the transfers and dates etc - you are correct. The trouble is that without the
formal bit of paper saying for what purpose it was used, Boris' fopping tax vulchers could claim it was used for
holidays, cars, drugs etc etc etc. and we'd have no come back.

It's all in the DATE (cough*) on the agreement you need to draw up now

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