# tax treatment of an interest free loan?



## m500dpp (Feb 17, 2006)

Any accountants/tax experts on here?

My father is in care and my sister and I are considering selling his property, putting an amount aside to pay for his care and splitting the proceeds as interest free loans which will ultimately be cancelled as our inheritance.

are the tax office likely to view this as a gift and hence levy gift tax?


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## DiscoDriver (Oct 27, 2009)

AFAIK there is no such thing as 'gift tax'. Since the loans will form part of your father's estate, they will still be liable to Inheritance Tax on his death (although if his total estate is within £300k or so, it will be within the nil rate band so you won't have anything to pay). Should the money you have put aside to pay for his care prove insufficient, I suspect that the Local Authority will refuse to pay for his care as he (or rather you) will have intentionally reduced the availability of funds to his estate. But if you are prepared to make any top ups required, I don't see this as being a problem. Do you have full power of attourney over your father's current finances?


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## organgrinder (Jan 20, 2008)

Largely as DiscoDriver says. The loans are exactly that and would have to be repaid to the estate on your father's death (although offset against the amounts due to you is more likely). Loans will make no difference to any potential tax bill for Inheritance Tax but similarly won't incur any cost now.

If the amounts paid to you and your sister were gifts then they would be PETs (Potentially Exempt Transfers) which would no longer be treated as part of your father's estate if he survives for 7 years after the gift.

My main concern would be that taking money as a loan or a gift may not be viewed very favourably unless your father is still deemed to be capable of dealing with his own affairs. If not, as Trustees, you have a legal duty to act in his best interests and handing out interest free loans may not be seen as such: I would speak to a solicitor on this.


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## m500dpp (Feb 17, 2006)

Thanks guys pretty much as I thought. I do realise we would be liable for my father's care, there is no intention of getting around this. The revenue site views the loan as exactly that, the value of not charging interest would be treated as a gift, but the amount would be too small to attract tax.

My father is still fully mentally capable, and is happy for us to deal with his affairs in this way.


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## organgrinder (Jan 20, 2008)

If your father is still mentally capable of looking after his own affairs then he could just make a gift to you and your sister. In this way there would be a potential to reduce IHT if he survives for 7 years.

If he makes a loan to you then it will still be considered to be part of his estate and he might pay IHT on the amounts depending on the value of his estate.

There is nothing I am aware of which would cause a problem if no iterest was charged on a loan as long as your father gave it to you rather than you giving it to yourself from assets belonging to him, over which you have control.


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## joe_0_1 (Apr 7, 2007)

FY2009 has an exemption of £325,000. Anything below this will not be taxed.


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