My wife's father has just told us that his interest-only mortgage is expiring in October and his intention was to extend the mortgage for another five years. However, the bank have said he is not able to extend the mortgage and the £l00,000 loan amount needs to be paid in two months’ time. Unfortunately, he now has cancer and no-one knows the severity at this stage or how long he has to live. My wife and I live abroad but don't own a house in the UK, but my wife's sister lives in the UK and owns a house. My wife and her sister both want to help him by paying £50,000 each to clear the loan or to buy the property from him. The property is worth £230,000. Will my wife or her sister have to pay capital gains tax (CGT) or inheritance tax (IHT)?

Arthur Weller replies: 

If your wife and her sister lend £50,000 each to your father in law, there will be no tax consequences. If they buy the property from him, he will be liable to CGT, if he bought the house originally for less than £230,000, subject to the availability of principal private residence relief. Most likely the best option is to lend him the money. This should be properly arranged, per www.hmrc.gov.uk/manuals/ihtmanual/IHTM28321.htm, and pages CG28322-CG28330, so that the £100,000 will be an allowable (for IHT) liability on his estate when he dies.