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HMRC internal manual

Inheritance Tax Manual

Liabilities: investigating form IHT419: how FA86/S103 works

FA86/S103 applies to debts incurred or created by the deceased on or after 18 March 1986 that would otherwise be allowable as deductions

The legislation seeks to disallow debts to the extent that the consideration given by the creditor consisted of

  • property derived from the deceased (IHTM28365), or
  • other consideration given by a person who was at any time entitled to, or whose resources included at any time, property derived from the deceased (IHTM28366).

But the above restriction will not apply (IHTM28368) if the taxpayers can show that

  • the original transfer by the deceased was not a transfer of value, and
  • the property was not the subject of associated operations.

If the debt is disallowed any repayments of the debt are treated as PETs (IHTM04057) at the time they were made, FA86/S103 (5) FA 1986.

A disallowed debt will be treated as a specific gift for the purposes of calculating the value of a partly exempt estate, IHTA84/S38 (6).

The combination of chargeable transfers and disallowed debts may give rise to double charges (IHTM28370).