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HMRC internal manual

Inheritance Tax Manual

Pre-owned assets: avoidance of double charges: debt written off or released

The Inheritance Tax (Double Charges Relief) Regulations SI2005/3441 provide for a specific relief where a home loan or double trust scheme (IHTM44103) is unravelled by the debt being released or written off. The effect of unravelling the scheme in this way is that, on the assumption that the settlor has died within 7 years of making the original PET, both the PET and the value of the now unencumbered property form part of the estate. The regulations operate in the same way as the primary double charges regulations (IHTM14691) in that two calculations are performed

  • firstly, the Inheritance Tax due is calculated including the value of the property in the estate and ignoring the PET of the debt, and
  • secondly, the Inheritance Tax due is calculated taking account of the PET, but ignoring the value of the property.

The higher overall amount of tax is due. Not only will the value of the house have an impact, but the possibility of spouse exemption (IHTM11031) on death and taper relief (IHTM14611), if the PET is taxable and made more than 3 years before the death, will both affect which charge is to be preferred.