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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Liabilities: restricted deductions: introduction

The Finance Acts 2013 and 2014 contain provisions that restrict when and to what extent liabilities may be deducted against the estate. The restriction will apply depending on:

  • what the borrowed money was used for, or
  • on death, on whether the borrowed money is repaid from the estate.

The Finance Act 2013 provides for restrictions that apply where:

  • the borrowed money was used to acquire, maintain or enhance excluded property (IHTM28014),
  • the borrowed money was used to acquire, maintain or enhance assets that qualify for business, agricultural or woodlands relief (IHTM28019),
  • on death, the liability is not repaid or discharged out of the estate (IHTM28027).

The Finance Act 2014 provides for restrictions that apply where the borrowed money was to fund a qualifying foreign currency account (IHTM28033).

The legislation is found at IHTA84/S162A-C and IHTA84/S175A. IHTA84/S162A, 162AA andS175A govern whether a liability may be taken into account in the first place; and if the liability passes those tests, the remaining provisions set out how the liability may be deducted.

The restrictions contained in the Finance Act 2013 apply to deaths, transfers and relevant property trust charges that occur on or after 17 July 2013; the restrictions on foreign currency accounts apply to deaths that occur on or after 17 July 2014.Where the loan was taken out in connection with assets that qualify for relief, the restrictions only apply to liabilities incurred on or after 6 April 2013. In other cases, it does not matter when the liability was incurred, FA13/Sch36/Para5 (IHTM28011).