Question
Hello, my father paid off a loan for me 4 years ago a sum of £37,000. He has recently died, will I have to pay income tax on this amount as it's under the 7 year rule? If so, at what % of tax will i have to pay?Answer
I'm sorry to hear about your loss.
When your father repaid the loan this would be treated as a gift for inheritance tax purposes. There's no income tax to pay from your point of view, as gifts aren't taxable, but your father's estate might have to pay inheritance tax on the gift at a rate of 40%.
Gifts are normally deemed to remain in someone's estate for 7 years after being made. If the gift (when added to any other gifts) exceeds the nil rate band (currently £325,000) then it can benefit from 'taper' relief, which progressively reduces the amount of gift subject to inheritance tax before becoming exempt after 7 years.
So, in simple terms, if your father's estate (i.e. house, possessions, other assets and gifts made within the last 7 years) exceeds £325,000 then the amount above that will be subject to 40% inheritance tax. However, if your Mother is still alive your father's assets can be passed across to her free of inheritance tax, along with any unused nil rate band (which can then be added to her nil rate band for use in future).
Hello, my father paid off a loan for me 4 years ago a sum of £37,000. He has recently died, will I have to pay income tax on this amount as it's under the 7 year rule? If so, at what % of tax will i have to pay?Answer
I'm sorry to hear about your loss.
When your father repaid the loan this would be treated as a gift for inheritance tax purposes. There's no income tax to pay from your point of view, as gifts aren't taxable, but your father's estate might have to pay inheritance tax on the gift at a rate of 40%.
Gifts are normally deemed to remain in someone's estate for 7 years after being made. If the gift (when added to any other gifts) exceeds the nil rate band (currently £325,000) then it can benefit from 'taper' relief, which progressively reduces the amount of gift subject to inheritance tax before becoming exempt after 7 years.
So, in simple terms, if your father's estate (i.e. house, possessions, other assets and gifts made within the last 7 years) exceeds £325,000 then the amount above that will be subject to 40% inheritance tax. However, if your Mother is still alive your father's assets can be passed across to her free of inheritance tax, along with any unused nil rate band (which can then be added to her nil rate band for use in future).
Read this Q and A at http://www.candidmoney.com/questions/question549.aspx
No comments:
Post a Comment