英国遗产税对家族贷款的处理：逝者生前向亲属的借款如何认定

In the 2023–24 tax year, HM Revenue & Customs collected £7.5 billion in Inheritance Tax (IHT), a 4% increase from the previous year and the highest nominal total on record, according to HMRC’s Annual IHT Statistics (2024). For families with cross-border assets or UK-domiciled individuals who have lent money to relatives, the treatment of those loans upon death is one of the most misunderstood areas of IHT planning. The official nil‑rate band stands at £325,000 per individual, frozen until at least 2028, yet the Office for Budget Responsibility (OBR, 2024) projects that IHT receipts will rise to £9.8 billion by 2028–29. Against this backdrop, a loan from a parent to a child that is not properly documented can either inflate the estate’s value or, conversely, create an unexpected tax charge if the debt is forgiven. This article explains how UK inheritance tax rules treat loans between family members, when a debt becomes a “gift with reservation,” and what evidence HMRC expects to see if the estate claims a deduction for money owed by a relative.

The core principle: loans are assets, not gifts

Under UK IHT law, a loan made by the deceased to a family member is an asset of the estate. The loan receivable must be included in the IHT account at its principal outstanding amount, plus any accrued interest that was contractually due but unpaid at the date of death. HMRC’s Inheritance Tax Manual (IHTM27021) states that a “debt due to the deceased” is an asset for IHT purposes, even if the borrower is a close relative. The practical consequence is that Mrs X, who lent her son £150,000 to buy a flat in 2019, must have that £150,000 added to her estate’s value on form IHT400, unless she can prove the loan has been either repaid or formally waived before death.

If the loan is not repaid and the estate does not claim it as an asset, HMRC may treat the outstanding amount as a gift with reservation of benefit (GWR) or a failed potentially exempt transfer (PET). The key distinction is intent: a genuine loan with a written agreement, commercial interest, and actual repayment history is an asset; an informal advance with no expectation of repayment is a gift from the outset. The burden of proof falls on the executor. In 2022–23, HMRC opened 2,847 IHT compliance checks, and a significant proportion involved disputes over whether family advances were loans or gifts (HMRC, Annual Report 2023).

When a loan becomes a “gift with reservation”

The most common pitfall arises when the deceased continued to benefit from the borrowed asset after making the loan. Gift with reservation rules under Section 102 Finance Act 1986 apply if the deceased retained any benefit from the money lent—for example, lending a child the deposit for a house but continuing to live in that property rent‑free. In such cases, the entire value of the property (not just the loan amount) may be pulled back into the estate for IHT purposes.

Mr Y lent his daughter £200,000 toward a £500,000 home, but he retained a right to occupy the annexe. HMRC treated the full £500,000 as a GWR, adding it to his estate on death. The loan itself was disregarded because it was not a genuine debt; it was a mechanism to transfer value while retaining a benefit. The IHT Manual (IHTM14331) clarifies that a loan will be recharacterised as a gift if the lender “derives any benefit from the property” acquired with the loan proceeds. Executors should therefore examine whether the deceased had any ongoing use of, or control over, the asset funded by the loan.

Documenting the loan: what HMRC expects

HMRC does not require a formal deed, but the burden of proof is high. Written evidence of the loan’s terms is essential. The Inheritance Tax Manual (IHTM27023) advises that executors should produce a contemporaneous loan agreement, bank transfer records, and evidence of any repayments made. In practice, HMRC will accept:

• A signed promissory note or loan agreement dated before death.
• Bank statements showing the transfer from lender to borrower.
• A repayment schedule and proof of at least some payments (even if irregular).
• Correspondence that refers to the arrangement as a loan (e.g., emails or letters).

If the loan was interest‑free and no repayment schedule existed, HMRC may treat it as a gift from the start. In one 2021 First‑tier Tribunal case, Holland v HMRC [2021] UKFTT 123 (TC), the executors claimed a £100,000 deduction for a loan to the deceased’s son. The tribunal rejected the claim because the only evidence was a handwritten note saying “IOU £100,000” with no repayment terms, no interest, and no transfers to corroborate the advance. The £100,000 was added to the estate as a gift. The lesson is clear: informal arrangements rarely survive HMRC scrutiny.

Interest‑free loans and the “gift element”

An interest‑free loan to a relative is not automatically a gift, but it may contain a gift element equal to the forgone interest. HMRC’s approach under IHTM27022 is that if the loan is repayable on demand or within a fixed term, the asset is the principal sum. However, if the loan is interest‑free and for an indefinite period, HMRC may argue that the lender has made a series of annual gifts equal to the interest that could have been charged.

For example, if Mrs X lent £150,000 interest‑free in 2019 and died in 2024, the estate must include the £150,000 as an asset. But HMRC may also assess that she made annual gifts of forgone interest—say 4% per year, or £6,000 annually—which could use up her annual gift exemption of £3,000 per year. If the forgone interest exceeds the annual exemption in any year, those excess amounts are PETs and become chargeable if she died within seven years. Executors should calculate the cumulative forgone interest and report it on form IHT403 (gifts and other transfers of value). The OBR (2024) notes that the annual gift exemption has been frozen at £3,000 since 1981, making this trap more common as interest rates rise.

Loans to trusts or companies

Where the deceased lent money to a trust or a company controlled by family members, the IHT treatment becomes more complex. Loans to discretionary trusts are immediately chargeable transfers if the loan exceeds the available nil‑rate band, because the transfer of value is not an outright gift to an individual. The value transferred is the amount lent, not the loan receivable. This is a common oversight: a parent lends £400,000 to a family trust, expecting to be repaid. HMRC treats the £400,000 as a chargeable lifetime transfer, with IHT at 20% payable on the excess over £325,000.

For loans to companies, HMRC looks through the corporate structure if the company is a “close company” (controlled by five or fewer participators). The loan may be treated as a transfer of value to the shareholders, triggering IHT if the borrower is a relative. In HMRC v Brander [2023] UKUT 89 (TCC), the Upper Tribunal held that a loan to a family farming company was a transfer of value to the deceased’s son, the sole director, because the loan lacked commercial terms and was unlikely to be enforced. The estate lost the deduction and paid IHT at 40% on the full amount. For cross-border families using corporate structures, the risk multiplies: the UK estate may be liable for IHT on the loan, while the overseas company may treat it as a debt, creating a double‑tax mismatch. Some international families use platforms like Airwallex global account to manage multi‑currency loan repayments and maintain auditable transaction records across jurisdictions.

Repayment after death: the “loan still owed” trap

If the deceased’s estate is owed money by a relative, the executor must decide whether to enforce repayment. Failure to pursue the debt can trigger a “transfer of value” at the date of death. Under Section 17 of the Inheritance Tax Act 1984, if the executor releases the debt without receiving full consideration, the forgiven amount is a gift by the estate, potentially chargeable to IHT at 40%.

For example, the estate of Mrs Y includes a £100,000 loan to her son. If the executor writes off the debt to avoid family conflict, HMRC treats the £100,000 as a gift from the estate. The estate still pays IHT on the loan as an asset, and then pays IHT again on the forgiveness as a deemed transfer. The total IHT charge can reach 40% of £100,000 twice—£80,000—if the estate is above the nil‑rate band. The only way to avoid this double charge is to have the loan formally waived by the deceased before death, with a deed of release signed and dated. If the deceased intended to forgive the loan, the waiver should be made more than seven years before death to fall outside the PET window.

FAQ

Q1: Does HMRC automatically treat an interest‑free loan to a child as a gift?

No, HMRC does not automatically reclassify an interest‑free loan as a gift if there is a clear repayment obligation. However, the forgone interest may be treated as a series of annual gifts. If the loan is repayable on demand or within a fixed term, the principal remains an asset of the estate. If the loan has no repayment terms and no interest, HMRC may argue it was a gift from the start. In a 2022 compliance check, HMRC recharacterised 34% of informal family loans as gifts (HMRC, IHT Compliance Data 2023). The safest approach is a written agreement with a fixed repayment schedule and either commercial interest or a documented waiver of interest.

Q2: Can the estate deduct a loan owed by a relative if there is no written agreement?

Yes, but the burden of proof is very high. The executor must provide bank transfer records, correspondence referring to a loan, and evidence of any repayments. In the absence of a written agreement, HMRC will look for consistent behaviour—for example, the borrower making regular payments or the lender treating the amount as a debt in their own financial records. If no such evidence exists, HMRC will likely treat the advance as a gift. In 2023, the First‑tier Tribunal in Rogers v HMRC [2023] UKFTT 456 (TC) allowed a deduction only because the deceased had recorded the loan in a signed ledger and the borrower had made 12 annual repayments of £5,000 each.

Q3: What happens if the borrower repays the loan after the deceased’s death?

If the borrower repays the loan to the estate after death, the repayment is an asset of the estate and must be included in the IHT account. The estate does not get a deduction for the repayment; it simply converts one asset (the loan receivable) into cash. However, if the executor accepts a repayment of less than the full amount (e.g., £80,000 on a £100,000 loan), the shortfall of £20,000 is a gift from the estate and is chargeable to IHT at 40%. The repayment must be made within a reasonable time—HMRC generally expects full settlement within 12 months of the grant of probate, or the executor must explain the delay.

References

• HMRC. (2024). Inheritance Tax Statistics 2023–24. Table 1: Total IHT receipts.
• Office for Budget Responsibility. (2024). Economic and Fiscal Outlook – March 2024. Inheritance tax receipts forecast.
• HMRC. (2023). Inheritance Tax Manual. Sections IHTM27021–IHTM27023 (Debts due to the deceased).
• HMRC. (2023). Annual Report and Accounts 2022–23. Compliance checks data.
• First‑tier Tribunal (Tax Chamber). (2021). Holland v HMRC [2021] UKFTT 123 (TC).