never repaid loan as part of an estate

[didds]

Scenario:

A lends B £3000
B never pays 3K back depsite being asked.
A foolishly never consulted anybody at the time of loan and there is no loan agreement. In essence A was naive and it is As word against Bs.
There is a bank statement BACS entry showing the transfer of 3K but no reason therein

A is now dead, less than 7 years from the loan.

Executors of A's estate are getting ducks in a row for probate etc

What can/could executors do about this?

1) force repayment of loan - if so how? Seems that as there is no documented evidence of it being a loan that's a non starter
2) treat it as a gift - but if less than 7 years that counts towards the estate. So if the estate is liable for IHT potentially the estate is due to pay IHT on 3K
3) do nothing?

or

4) send the boys round with cricket bats in the dead of night?

[JohnB]

The IHT is due from the giftee, not the estate, but otherwise not much without paperwork. And if they kick up a fuss wanting to know about other gifts that year and claiming their money was all or in part an IHT exempt gift, it would be a lot of work to resolve.

[fisher]

The IHT is due from the giftee, not the estate ...

I don't believe that's correct in most cases. See here: https://www.gov.uk/inheritance-tax/gifts

"Any Inheritance Tax due on gifts is usually paid by the estate, unless you give away more than £325,000 in gifts in the 7 years before your death. Once you’ve given away more than £325,000, anyone who gets a gift from you in those 7 years will have to pay Inheritance Tax on their gift."

[DrFfybes]

Scenario:

A lends B £3000
B never pays 3K back depsite being asked.
A foolishly never consulted anybody at the time of loan and there is no loan agreement. In essence A was naive and it is As word against Bs.
There is a bank statement BACS entry showing the transfer of 3K but no reason therein

A is now dead, less than 7 years from the loan.

As you are concerned about IHT, I'm assuming the £3k is a fairly trivial portion.

Also, would the £3k have made use of that year's (or carried forwards annual gift exemption or did the Deceased use it elsewhere?

If the £3k can be made exempt and it is a small amout then without documentary evidence I would just forget about it.

Paul

[didds]

As you are concerned about IHT, I'm assuming the £3k is a fairly trivial portion.

Also, would the £3k have made use of that year's (or carried forwards annual gift exemption or did the Deceased use it elsewhere?

If the £3k can be made exempt and it is a small amout then without documentary evidence I would just forget about it.

Paul

Whilst this is an actual situation, I was asking from a theoretical viewpoint really.

ie if IHT is payable then that unpaid 3K loan with no documentation/contract wold in effect be taxable and payable by the estate/giftee/who or whatever. Whether trivial or not.

and no, that year there was already 3K of gifts made elsewhere (and they year before etc etc ad nauseum yada yada)

[Gersemi]

ie if IHT is payable then that unpaid 3K loan with no documentation/contract wold in effect be taxable and payable by the estate/giftee/who or whatever. Whether trivial or not.

and no, that year there was already 3K of gifts made elsewhere (and they year before etc etc ad nauseum yada yada)

To be honest if someone is thinking about IHT to the extent of using their 3K exemption every year then it is remiss of them to make a loan without documentary evidence, knowing that without such it would have to be viewed as a gift if they die before it is repaid. I can only assume that they believed it would be repaid fairly quickly, but it's amazing how often such faith is misplaced.

[didds]

To be honest if someone is thinking about IHT to the extent of using their 3K exemption every year

they weren't. They weren't planning at all. Thats the whole issue.

[1] exascerbated by I/we now learn as executor to her husbands will, A didnt actually implement the trusts at all and just took the lot. But I CBA to even go there now ( I would have been one of the trusts ) - and i really dont wanty to derail this thread.


But i stress i asked out of theoretical scenarios. The horse has bolted for me as executor. what mum didn't do is now beyond bothering about. As it is the IHT allowance is unlikely to be breached (but it will be close). I was interested in the situation for somebody that has breached the IHT threshold AND this 3K loan existed. Purely out of interest

[scrumpyjack]

I would have thought this was an irrecoverable amount owed to the estate so should be valued for probate at Nil! So no iht on it.
(Assets are valued at market value- the market value of an irrecoverable debt is nil)

[Clitheroekid]

A is now dead, less than 7 years from the loan.

Executors of A's estate are getting ducks in a row for probate etc

What can/could executors do about this?

The limitation period for taking recovery action is 6 years from the date that repayment was requested, so if that was more than 6 years ago the claim would be statute-barred.

Of course, B may not be aware of that, so there's no harm in claiming it, and if the 6 years hasn't yet expired then the executors can issue a claim for payment, though whether it would be worth it is another matter.

Although many people might think that B would just claim it was a gift, in practice very few people are actually prepared to lie in situations like this. Once they receive the court papers they are more likely to panic and cough up.

[stevensfo]

Scenario:

A lends B £3000
B never pays 3K back depsite being asked.
A foolishly never consulted anybody at the time of loan and there is no loan agreement. In essence A was naive and it is As word against Bs.
There is a bank statement BACS entry showing the transfer of 3K but no reason therein

A is now dead, less than 7 years from the loan.

As you are concerned about IHT, I'm assuming the £3k is a fairly trivial portion.

Also, would the £3k have made use of that year's (or carried forwards annual gift exemption or did the Deceased use it elsewhere?

If the £3k can be made exempt and it is a small amout then without documentary evidence I would just forget about it.

Paul

Not only that but what if B just shrugs and says that he definitely paid it back in cash? Or that the 3K transfer was simply repayment of an earlier loan from B to A?

Without documentary proof, I don't see what anyone could do, or if it's even worth trying.

Steve

[didds]

Not only that but what if B just shrugs and says that he definitely paid it back in cash? Or that the 3K transfer was simply repayment of an earlier loan from B to A?

Without documentary proof, I don't see what anyone could do, or if it's even worth trying.

Steve

I suppose it wold then just become and argument with nothing to prove either way whether the amount was a gift or a loan anyway.

So with THAT in mind - how could any amount be proved as a gift or a loabn or a repayment for costs incurred?

eg a cheque. Even if it can be shown the cheque was eg to a son, whats to say if that was gift/loan/refund ? Do HMRC (for IHT purposes for example) jujst blanket assume any such amounts are ALWAYS or NEVER gifts ?

[gryffron]

Interestingly, several online pages assert that a payment is assumed to be a loan, unless specifically stated to be a gift.
(e.g. https://newsquarechambers.co.uk/wp-cont ... ry_Rai.pdf)
At least for IHT. I suppose that interpretation suits the taxman.

I would not have thought this myself. But can find several references stating thus.

If this is true, it means in your example B still owes A's estate/beneficiaries £3k. Although, in absence of any loan agreement, there is no obligation to repay it until B dies and their estate is settled. Which could be many many years hence! A loan cannot be reclaimed until its due date. No due date, no obligation to repay - until death of the debtor.

Gryff

[didds]

Interestingly, several online pages assert that a payment is assumed to be a loan, unless specifically stated to be a gift.
(e.g. https://newsquarechambers.co.uk/wp-cont ... ry_Rai.pdf)
At least for IHT. I suppose that interpretation suits the taxman.

I would not have thought this myself. But can find several references stating thus.

If this is true, it means in your example B still owes A's estate/beneficiaries £3k. Although, in absence of any loan agreement, there is no obligation to repay it until B dies and their estate is settled. Which could be many many years hence! A loan cannot be reclaimed until its due date. No due date, no obligation to repay - until death of the debtor.

Gryff

Thats interesting Gryff thankyou.

Now B is probably at least 50 years from a likely death date by which time A's estate will be in the hands of a secondary inheritance (A-> child -> A's grand child) by which time they'll forget - and all that exists wrt that 3K loan is a remembered verbal agreement and a bank statement entry showing the BACS payment. So if it remembered by the grandchild(ren) AND they know that B has now died AND 3K by then isn't just worth 28p by today's standards AND they can be bothered to chase it ... Id imagine the chances of actually getting that debt settled then is all but zero

[gryffron]

Now B is probably at least 50 years from a likely death date

So don't forget the grandkids will have to send B a reminder every so often, or the debt becomes time-barred after 6 years.

£3k could be the cost of a stamp by then.