Loan to a family member

[Segilla]

On death, my estate will be divided equally between my son and daughter. She is about to be divorced and needs quite a hefty sum now to pay off her ex husband for his share of the house. I am elderly and do not think it wise to *give* her money in case I die within seven years, so it will be a loan, the intreest only being paid. Having worked in insurance all my life, I'm capable of drawing up a simple but accurate document detailing matters, This will also deal with payment of reasonable interest to ensure that it will not fall foul of the IR and also ensure that the capital is fairly taken into account on my death. This procedure might be unwise, but wouid such a document be legal?

[MustafaTickl]

To assist in a useful answer could you say, please;

(1) Are there any beneficiaries under your will other than your daughter?

(2) Do you expect the capital to be repaid to you during your lifetime? If so, roughly when?

(3) Could you afford to make an outright gift of the money to your daughter?

There are several ways of looking at it depending on your answers.

[Didwot]

Irrespective of the IHT situation there is nothing illegal about lending money to your daughter, and expecting her to pay you interest, and to repay the capital.

[Segilla]

Thanks for your responses.

1. Benficiaries are son and daughter
2. It's about �25k, I'm 73 - so I don't think repayment in my lifetime is realistic nor would I expect it except in dire emergency. Effectively, my daugher is borrowing against her inheritance.
3. I could just about afford to make an outright gift.. But I think it's good for her to have to pay reasonable interest. She's 40. I had to wait till aged 68 for the family money to come down to me.

[MustafaTickl]

OK. Taking the 2nd sentence of your (3) as most important the Loan Note is one way. It will have to be specific about repayment of the capital saying "on demand" and "four weeks after your death"' or whatever, what happens if she stops paying the interest and that interest must be paid after your death until redemption. And to be fair to your son a restriction (formerly called a charge) on the property should be registered at the Land Registry, to be released when the loan plus interest in full is repaid.

[Segilla]

Many thanks, Mustafa Tickl.

[MustafaTickl]

Sorry, I was called away and completed the answer in a hurry. Is that enough for you? Another way is if you own the property as tenants in common jointly with your daughter and charge her the interest as rent for your part of the property. Would you like to explore that?

[Segilla]

No, what you've already told me shows how to proceed.