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HMRC internal manual

Inheritance Tax Manual

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HM Revenue & Customs
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Liabilities: investigating form IHT419: is a loan from family and friends allowable?

This is a complicated area where it is not possible to cover all scenarios and where you will often need to consider the application of the law of contract, evidence or even trusts. But you should bear the following in mind.

Is the debt legally enforceable?

You need to establish that there was a written or oral agreement between the deceased and the lender at the time the debt was created that the deceased intended to repay the amounts lent. If this is present, or the deceased can be regarded as accepting the money advanced as a loan by conduct (usually because the deceased made repayments), then you can accept the claim is a debt. But you could not accept an unsupported assertion by the lender.

In Scotland, proof of writ or oath was abolished by S11 (1) Requirements of Writing (Scotland) Act 1985, and loans may now be proved by any competent means. This may include for example, statements by third parties, repayments, relevant bank statements, writings by the borrower, and other means. Often a combination of these will be necessary to show that the transaction was a loan.

Past consideration

A statement made by the deceased after the event is past consideration and the debt is not enforceable in general law and not allowable as a deduction for Inheritance Tax purposes.

No consideration in money or money’s worth

Voluntary covenants although legally binding because they are created under deed are not allowable deductions because there is no consideration in money or money’s worth.

You should refer any contentious cases to Technical for advice.