Not sure if this is law, legal, finance, or whatever, but here goes.

[VHG]

My mother died recently leaving a large house worth over £650,000 (and some savings) with the estate to be split amongst her 5 children (my father died 8 years ago).

Because my father died without using any of his inhertirance tax allowance we only have to pay the tax on anything over £650,000.

However my mother lent my sister £100,000 to buy a house 4 or 5 years years ago (the loan spread over a couple of years). We all assume this £100,000 is part of my mums estate so will count towards inheritance tax (at 40%).

However my sister wants to say this £100,000 was a "gift" and not tell the solicitor or tax people about it so it does not form part of my mums estate and is not liable for inheritance tax.

The rest of us are unsure about this (we dont want to get in trouble with the tax people or police like Harry Redknapp !).

So what are the implications for us all of "forgetting" this loan/gift as far as my mums estate is concerned?

[HowardKennitby]

I think there is a time limit on gifts. If donor dies before this limit the gift is still liable.
Not worth the risk in my view.

[White_Cat]

Firstly I think you will find that as the loan/gift was given too recently, and of too large an amount (over £5000), to be tax exempt (less than seven years before you mother passed on.) under any circumstances.

See:
http://www.hmrc.gov.u...erty/exempt-gifts.htm

[dzug2]

If the loan has been paid back it's not, and never was, a gift.

So your mother's estate has the money and it does count towards IHT. It doesn't need to be mentioned separately as it's already there.

If it HAD been a gift it would still be part of the estate for IHT under the 7 year rule and it would be fraud not to mention it.

[boxtops]

For it to count as a gift it would have to be documented as such, and the period for exemption is seven years - your mother's loan to your sister is within that period so IHT is payable.

[White_Cat]

Firstly I think you will find that as the loan/gift was given too recently (less than 7 years before your mother passed away), and is of too large an amount (over £5000), it is not tax exempt under any circumstances.

See:
http://www.hmrc.gov.u...erty/exempt-gifts.htm

[factor-fiction]

I agree with the above regarding tax treatment of gifts.
Treating it as a gift is unfair on the others beneficiaries anyway, or would complicate the distribution and someone may challenge it.
The capital gains tax only applies of course to the estate's value in excess of the capital gains tax limit. Tax on this £100000 is of course £40000 which is only a small amount compared with the overall size of the estate.
I think the best approach is to come clean to the solicitor about it.

[dzug2]

Where does capital gains tax come in to it? IHT surely?

[factor-fiction]

Sorry- meant IHT not CGT! Shouldn't chat while typing
Fortunately (unfortunately?) I've never come across either tax in real life

[NOX]

dzug is quite correct- if the loan has been repaid- the estate already has it so it is and always was part of the estate and doesn't need a seperate mention.

[themas]

It seems to me from the post that the loan hasn't been repaid. It is therefore a debt to the estate and has to be included in it as such.

If it had been a gift it would still be included in the estate's IHT account, & tax would be due at whatever rate applies to a gift made 4 or 5 years before death.

There must be records of this loan - e.g. in your mother's bank statements. HMRC are quite able to investigate things & if it wasn't declared & they found out about it there would certainly be a substantial penalty on top of the unpaid tax - & possibly a prosecution. Do not go down that route.

[cathfromsaron]

i would get it repaid properly *and* pay the tax!

cath x