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HMRC internal manual

Inheritance Tax Manual

From
HM Revenue & Customs
Updated
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Liabilities: investigating liabilities: annuities

Before allowing a deduction for annuity payments you must make sure that the conditions (IHTM28381) in IHTA84/S5 (5) are met. An example of a situation where an annuity may be deductible is where the payments follow a divorce or separation or dissolution of a civil partnership (IHTM11032) (IHTM28091). If the conditions are met then how you calculate the value of the debt will depend on whether:

  • the payment of the annuity is merely the personal responsibility of the deceased or transferor to the annuitant (IHTM28051), or
  • the annuitant could have insisted on capital (IHTM28052) being set aside to pay the annuity.

But an annuity that was covenanted by an individual in their own marriage or civil partnership settlement, and is paid on their death is not an allowable deduction on that death. (Entering into marriage is not treated as consideration in money or money’s worth for the purposes of IHTA84/S5 (5).) The general position is that ‘no deduction may be taken for an annuity the transferee has voluntarily agreed to pay’ - HM Adv v Alexander’s Trustees (1905) 7F 367.