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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Liabilities: investigating liabilities: future debts

If a liability is not due to be discharged until a future date it is taken into account at a discounted value rather than the amount eventually to be paid, IHTA84/S162 (2). So debts payable at a future date that do not carry interest (or with interest at less than the market rate) should be discounted. The rate of discount will vary according to market conditions.

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This rule does not apply to the deceased’s liability to Inheritance Tax, which is taken into account at the full amount whenever due (IHTA84/S162 (3)). Nor does it apply where there has been a change of accounting basis for a trade, profession or vocation that gave rise to a significant increase in income tax which may be spread over ten years, FA88/S44. The personal representatives have the option to accelerate the payment and in the circumstances a discount is not appropriate.

The introduction of self-assessment (SA) has meant that income tax liabilities may not be payable until some time after the date of death and may need to be treated as a future debt. It is also possible for CGT liabilities to be payable after the date of death.