Debt and taxes

By THIS IS MONEY
Updated:

 

My brother owes my mother more than £300,000, which he is unable to repay. My mother is 80 years old and her other assets amount to about £50,000. If she dies with no change in this situation her 'total estate' will be over the inheritance tax limit. Will the estate have to pay inheritance tax on money she does not actually have, and has little chance of recovering? CN, Amersham, Bucks.

Maurice Fitzpatrick, accountant with Chantrey Vellacott DFK, says: You do not say enough about the situation to enable me to give you a definite answer, but the general rule used by the Inland Revenue when deciding if a loan is part of an estate is whether it is 'documented and collectable'. If it is, then it is likely to be assessed as part of your mother's estate at face value (though it may be arguable that for inheritance tax purposes it is worth less than face value). Factors that affect the Revenue's decision might include any documentary agreement about the loan, whether your brother had agreed to repayments and if so at what rate and whether he paid them, how difficult would it be for him to realise the money, and various others - it depends on the individual situation. If there was no intention to repay then your mother could formally waive the loan and then it would definitely not be counted as part of her estate. For more detailed advice see a solicitor.

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