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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Liabilities: law relating to debts: what is consideration?

In law, consideration is an act or promise to do (or not to do) something in return for value, and the value given is enforceable. All the law requires is ‘valuable consideration’ and if you choose to give £10 for a painting worth £1,000 that is valuable consideration. Provided there has been offer and acceptance you can sue for delivery of the painting. But for Inheritance Tax purposes for a debt to be allowable the deceased must have received consideration in money or money’s worth. But it will be allowable only to the extent that money or money’s worth is received, IHTA84/S5 (5). In this example the extent of the consideration in money or money’s worth is £10.


Suppose that Aiden (with the intention of benefiting Bianca) agrees to pay Bianca £20,000 for The Fairfield, which is worth £12,000. The debt of £20,000 is allowable only to the extent of £12,000 and so the value of Aiden’s estate is the same after the agreement as before. There is no transfer of value until he pays the money. If Aiden dies before paying the sum owed, only £12,000 can be deducted from the value of his estate.

Past consideration

In general law, and also for IHT purposes, it is said that past consideration is no consideration. So debts which are claimed to represent payments for services that were provided in the past are likely to be invalid without a formal agreement in place, Pao On v Lau Yiu Long [1980] AC 614. This is most likely to occur in the case of debts to relatives or friends.

If you have any doubts or difficulties over whether there is past consideration, you should refer the debt to Technical for advice.