Gift or loan of cash between family for tax purposes? - USERNAME: carney1
Tax Question: Hi all, I appear to be in 'check-mate' in the following scenario. Could you please let me know if there is any possible way out. Mother in law officially made a very open loan to us of 70,000 GBP in 2006 that was only expected to be repaid if we could afford it and in our own time or in the extreme if she needed it urgently for future health care. The money was used towards the purchase of a property in France. The property was resold at a loss in september 2008 but repayment of the 70,000 GBP was not required(we did not officially repay the money) but given to my wife(only daughter)as deposit on a house in the UK. Parent has very recently died. IHT is going to be due on the estate. Will the 70,000GBP be considered a loan and added to the total estate or can it be considered a gift and so eligible for some taper relief, thus reducing the IHT bill. Hope all this is comprehensible and thanks in advance.
A. Answer: I suppose it would depend on the legal classification of the transfer of cash and in particularly what documentary evidence supported the transfer. If there was written evidence that supported the fact this was a loan and could be transferred in the future there is little you could do other than perhaps arguing that the transfer of the cash to your wife in Sept 2008 was then a gift (however this would be of no benefit in any case as the gift would have been less than 3 years before death). If there was no documentary evidence it may be more difficult for anyone to argue that the transfer of the cash was a loan. I believe that transfers between close family members would be deemed to be gifts (on the basis there is no intention to create legal relations) unless there was express evidence that pointed otherwise. It would be best to take legal advice on the nature of the transfer.
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