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HMRC internal manual

Inheritance Tax Manual

Liabilities: law relating to debts: legal background

The general rule is that in valuing a person’s estate you take into account all liabilities that are in existence at that time, IHTA84/S5 (3). The main exceptions to this rule are

This means that probate fees and other costs of administering the UK estate are not allowable since they are incurred after the death.

For Inheritance Tax purposes a liability is defined by IHTA84/S5 (5) as

  • a debt imposed by law (such as tax, fines, penalties and council tax), or
  • a debt for which the deceased received consideration (IHTM28382) in money or money’s worth to the extent that money or money’s worth was received.

All debts must be capable of being legally enforced (IHTM28383) except for debts that are statute-barred (IHTM28384).

The normal rule is that the amount to be deducted is the actual amount of the liability. But there are two exceptions to this rule:

  • debts that are payable at a future date (IHTM28110) and
  • contingent liabilities (IHTM28070).

You should also bear in mind that if there is a right of reimbursement in respect of a liability a deduction can only be allowed if there is no realistic prospect of obtaining that reimbursement, IHTA84/S162 (1).

There are some specific rules (IHTM28391) that tell you against which property or title a deduction may be given.