IHT is normally charged on the net value of a deceased person’s estate after deducting the following:
- liabilities which were outstanding at the date of death
- exemptions and a nil rate band.
Hitherto, a deduction for liabilities has been given for the full sum owed to the deceased’s creditors. It has not been limited to the amount actually repaid after the person’s death or restricted where the liability was incurred in order to acquire a property which (for example) qualifies for a relief such as a 100% business property relief.
In a surprise announcement, which appears to be an attack on what was previously regarded as relatively unaggressive and sensible tax planning, the Treasury has confirmed that rules covering deductable liabilities for IHT purposes are being tightened up.
Thus, by way of example, loans which have been raised against a businessman’s home to invest in his company will no longer be deductible from his estate in the event of his death, though the company will still qualify for Business Property Relief.