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Readers Forum: Inheritance tax idea

25 May 2021
Issue: 4793 / Categories: Forum & Feedback
Using loans to reduce inheritance tax liability.

Inheritance tax idea

A large inheritance tax bill is likely when my client dies and he has suggested that he reduces the net value of his estate by taking out a loan to create a debt.

With an equity release scheme or a lifetime mortgage the client could borrow from a commercial lender with the debt secured by a charge against his properties. The interest would be rolled up so that the loan would only be repayable after death. The client could then gift the cash from the loan to his children. As a potentially exempt transfer there would be no inheritance tax liability if he lived for seven years.

However the interest bill after death could be considerable. The children could invest the cash and try to obtain an interest rate which was reasonably close to that payable on the loan. The problem is that the...

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