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HMRC internal manual

Inheritance Tax Manual

Foreign property: specialty debts: bonds and debentures under seal

A specialty debt is:

  • a debt made by deed, or
  • a deed which records or creates obligations, or
  • a debt incurred by way of statute, or
  • a certain type of debt that is given the nature of a specialty debt by statute

The debt may be secured or unsecured. At present the law by which the situs of such debts is determined is largely set out in a number of Privy Council decisions from 1891 onwards.

HMRC has revised its previous approach to the Inheritance Tax (IHT) treatment of such debts, which was that where the debt is situated depends on where the relevant document is to be found. HMRC will take the following approach, which will apply regardless of when the specialty debt was created.

Secured specialty debts

Where the debt is solely secured on land or other tangible property situated in the UK the situs of the debt will also be in the UK. HMRC considers the situs of the debt follows the genuine interest of the creditor in the secured property, not merely the personal obligation of the debtor to repay (which may be situated elsewhere, for example where the debtor is resident).

Any claim that a debt secured on UK assets is not UK situs property must be sent to Technical.

Unsecured specialty debts

Where the debt is not secured the view of the Courts is that the situs of the debt is usually where the relevant deed or instrument evidencing the debt is found. HMRC will generally adopt this approach to unsecured specialty debts. However, it is possible to exploit this approach artificially by, for example, removing the document from the UK to avoid an IHT charge. Where the creditor and debtor are both resident in the UK but the deed evidencing the debt has been removed from the UK, it may be possible for HMRC to argue that the debt is nevertheless situated in the UK for the purposes of the IHT charge. For this reason all cases in which a specialty debt is claimed to be situated outside the UK should be referred to Technical.

Finance (No 2) Act 2017

From 6 April 2017, in cases where the loan monies have been used by the debtor to acquire UK residential property, then you should also consider the guidance at IHTM04313. In such a case the debt may not be excluded property for IHT purposes even if it is regarded as having a situs outside the UK.