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HMRC internal manual

Inheritance Tax Manual

Liabilities: investigating form IHT419: consideration for a guarantee debt

Before you can allow a deduction you must be sure that consideration was given in money or money’s worth, IHTA84/S5 (5).

This will usually be the case. For example, in the normal commercial situation where a bank will not extend credit to A without a guarantee from B the ‘consideration’ for the debt will be the granting of credit on the strength of the guarantee. In cases where a company’s overdraft is guaranteed by one of the principal shareholders, you should assume that the requirements of IHTA84/S5 (5) are satisfied.

An example of the sort of situation where there may be no consideration is where a parent agrees to guarantee a child’s bank borrowings without the bank itself having given any undertaking in connection with the debt. The fact that the bank has made no undertaking means there has been no consideration. In this case the main purpose of the guarantee is to benefit the child, perhaps simply as an assurance that the parent will meet any debts incurred by the child from the bank. If a guarantee was given without any consideration you should not allow a deduction and you should also consider the possibility that lifetime transfers (IHTM28356) were made.