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HMRC internal manual

Inheritance Tax Manual

Liabilities: investigating form IHT419: what is a guarantee debt?

A guarantee debt is a promise to pay the debts of another person (the borrower) should that person not be able to repay those debts. This usually arises when a borrower cannot obtain money from an individual or financial institution unless they receive such an undertaking from a third party.

A guarantee debt can generally only be enforced if it is in writing. This requirement is in Statute of Frauds 1677/S4 and in the Mercantile Law Amendment (Scotland) Act 1856. But this rule does not necessarily apply to transactions that are entered into after 1 August 1995 under Scottish law. Following the Requirements of Writing (Scotland) Act 1995 guarantee debts only need to be in writing if they are gratuitous unilateral obligations which have not been entered into in the course of a business. If the guarantee debt is not gratuitous or if it has been undertaken in the course of a business, writing is not required.

If the deceased agreed to act as a guarantor and at the time of death the loan had not been repaid a deduction may be due (IHTM28355) in respect of the outstanding loan. But before doing this you will need to look at whether any consideration (IHTM28353) was given for the debt and the likelihood of the debt being reimbursed (IHTM28354). In some circumstances the giving of the guarantee itself may amount to a lifetime transfer (IHTM28356) even if all payments under the agreement were made before death (IHTM28357).