Interaction of Loans, Gifts and CLTs
Wildparaplanner
Member
Hi all,
We have a new client who had a CLT back in 2019 which used up £290k of the NRB. Our understanding is there were no gifts or CLTs before this date.
Since then, the client has made various loans to family (up to around £250,000 in total). They are now conscious that these should maybe have been gifts with regards effective IHT planning.
I am not privy to the loan agreements, but if these were to effectively become "gifts" at either death or a moment in time of the client's choosing, I presume it becomes a PET as at the date this event occurs and not back to the original loan event (in other words, its as if they have instantly recalled the loan and then immediately gifted it without money changing hands?).
If they do not want the loans to continue and intend these amounts to be gifts, from an IHT planning point of view, I presume they would be best placed to waive the loans now and not keep the loans? Or is there a compelling reason to keep the loans?
Hopefully making sense
Many thanks
Comments
If it is a loan, and identifiable as such, then it's a PET on the date it's waived. If the Will or loan agreement doesn't expressly cover what happens to the loan on death of the lender, it's an asset of the estate on death and technically needs to be recovered by the executors.
If they waive the loans now, they become PETs. If they die within seven years of the PET, it becomes a CLT. This is where the 14 year rule comes into play. Depending on the client's health, it might be worth waiting until seven years and one day after the 2019 CLT to waive the loans.
Thanks - I guess the immediate downside to keeping the loans as they are (assuming there is no waiver on death) is that the intended beneficiaries might have an issue paying this back to the estate.
Yes but they can be waived on death either through the Will or letter of wishes or amendment to the loan docs.