Background
27.IHT is normally charged on the net value of a deceased person’s estate after deducting liabilities outstanding at the date of death, reliefs, exemptions and the nil-rate band. The deduction for liabilities is given for the full value due to the creditors and is not limited to the amount actually repaid after death, or restricted if the liability has been incurred to acquire property which also qualifies for a relief or is not chargeable to IHT.
28.Reliefs are available for certain assets which are not chargeable to IHT in certain circumstances. These include business property relief, agricultural property relief and woodlands relief. Property which is situated outside the UK and which belongs to, or was settled by, a non-UK domiciled individual is ‘excluded property’. It does not form part of a person’s estate and is not chargeable to IHT.
29.IHTA includes limited provisions about when and how a liability should be taken into account. As a result, a tax advantage may arise where a liability is not repaid, or where the borrowed money is used to acquire property that is not liable to IHT.
30.The amendments made by this section will remove the tax advantage that arises from obtaining a deduction for a liability and either not repaying the liability after death, or acquiring an asset which is not chargeable to IHT. They will make certain arrangements unattractive because the estate will no longer gain the double benefit of a relief or exclusion and the deduction of a liability. They will also ensure that the treatment of liabilities used to acquire relievable property will be consistent for IHT purposes regardless of the nature of the assets acquired or how the loan has been secured.
