Trusts and Inheritance Tax

Gifts and reciprocal loans

Produced by Tolley
  • 23 Mar 2022 10:50

The following Trusts and Inheritance Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Gifts and reciprocal loans
  • Debts disallowed under the anti-avoidance rule
  • Phizackerley
  • Calculation of the tax
  • Double charges relief

Gifts and reciprocal loans

Debts disallowed under the anti-avoidance rule

The general rule is that liabilities are deducted from the value of an estate to determine the amount charged to inheritance tax. Refinements to this rule are described in the Expenses and liabilities guidance note.

There is a specific anti-avoidance rule targeted at situations where a liability has been ‘artificially’ created in the estate of the taxpayer. No deduction is allowed for any debt owed by the deceased where the sum lent to him derives from property previously given away by him.

Such a debt might arise where:

  1. the deceased had given money to another person who, in turn, had lent it back to him, or

  2. the deceased had given property to another person and that person, in turn, mortgages the property, lending the money raised in this way back to the donor (alternatively the other person may sell the property back, leaving the debt outstanding)

The gift to the other person will be a potentially exempt transfer (PET) (and a fully exempt transfer if the donor lives for a further seven years). The matching loan from the other person

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