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HMRC internal manual

Inheritance Tax Manual

Pre-owned assets: specific avoidance schemes: land - debt & charge scheme

The aim of this scheme was to allow spouses or civil partners to ensure that although the survivor inherited most if not all of the estate from the first to die, the couple, between them, still made use of both nil rate bands available to them.


Jack and Jill own their home in equal shares as tenants in common. Under his Will, Jack leaves property not exceeding the nil-rate band for Inheritance Tax to a discretionary trust, of which Jill is one of the potential beneficiaries. The remainder of his estate passes to Jill absolutely. Following Jack’s death, his executors transferred his half share of the property to Jill and, in return, she executed a loan agreement equivalent to the value of the half-share. No Inheritance Tax is payable on Jack’s death and when Jill dies, her estate is reduced by the debt and she also has her nil rate band to set against the couple’s assets.

The POA charge does not apply here. As Jill did not own her husband’s share at the relevant time and did not dispose of it, the disposal conditions (IHTM44004) in FA04/Sch15/Para3(2) are not met. If she did not provide Jack with any of the consideration given by him for the purchase of his half share the contribution condition (IHTM44005) in FA04/Sch15/Para3(3) will not apply either.

Even if she had provided him with some or all of the consideration the condition will still not apply as it would have been an excluded transaction (IHTM44032) under FA04/Sch15/Para10(2)(a). Had this been the case, however, the debt would not be allowable as a deduction on Jill’s death by virtue of FA86/S103.