F owns a property worth £1m. He has never married and in order to help his son move from his house, he intends to refinance his property, by taking out a £600,000 loan, and gifting this to his son.
If F survives the gift by seven years and then dies, all else remaining equal his estate value is therefore only £400,000 and hence with NRB and RNRB no tax is payable. However, is the loan deductible? In the back of my mind I vaguely recollect an issue with some anti-avoidance legislation and so I am asking the question as a ‘sanity-check’. (Come to think of it, I think the anti-avoidance relates to using the loan to invest in BPR assets or excluded property).
The anti-avoidance legislation you probably have in mind is FA1986 s.103 “Treatment of certain debts and incumbrances”, but this is designed to catch gifts which the donee subsequently lends back to the donor.
In my view, s.103 doesn’t apply in this case where, in effect, the donor has released equity from his property and gifted this outright to the donee, his son.
The debt should deductible on death assuming it is of course repaid.
The anti-avoidance legislation in FAs 2013 and 2014 will not apply. These provisions were broadly designed to prevent borrowings being secured on chargeable assets but the the proceeds being used to purchase property qualifying for BPR/APR etc or excluded property.