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HMRC internal manual

Inheritance Tax Manual

Liabilities: investigating form IHT419: purpose of S103 FA 1986

FA86/S103 is intended to prevent the avoidance of tax through the ‘artificial creation’ of liabilities which would normally be allowable as deductions. Broadly, the rules apply when the deceased has both borrowed money from someone and made a gift to that same person. The following is an example of the type of arrangement the legislation is designed to prevent


Andrea gives land valued at £100,000 to Boris

Boris raises £100,000 by way of mortgage and advances this sum to Andrea.

Andrea dies 8 years later with the whole sum outstanding and having regularly acknowledged the debt to Boris.

The gift by Andrea escapes tax as a PET (IHTM04057) made more than 7 years before death while the £100,000 debt is claimed as a deduction from Andrea’s estate.