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HMRC internal manual

Shares and Assets Valuation Manual

Inheritance Tax: Guarantee Debts

The Inheritance Tax Manual Chapter 28 IHTM28351 gives the background to guarantee debts and their treatment for IHT purposes. As the IHT Manual says, s.162 (1) IHTA provides that “the liability is to be restricted to the extent that reimbursement cannot reasonably be expected.” Generally, SAV’s involvement with guarantee debts will take the form of advising the IHT caseworker on whether and, if so, when the company (the primary debtor) could be expected to reimburse the guarantor (the deceased); or whether there was any danger that the company would not be able to meet its liabilities. The background to such requests is usually that the lender has called upon the guarantee, the estate has been required to pay the guaranteed sum and it is claimed that that amount is a valid deduction against the estate for IHT purposes. You are asked to advise whether the primary debtor, the company, was in a financial state to reimburse the guarantor in respect of the debt at the date of death.

In advising the IHT caseworker, you should take into account similar factors to those discussed in this chapter at SVM108080 regarding loans due to deceased persons. If, for instance, the company is in a sound, profitable position, your advice would generally be that there was no reason why the company should not reimburse the guarantor in full. Conversely, if the company is making losses and it is clear that, on a liquidation, there would be a large surplus of creditors over assets, the conclusion might be that the company could refund none or only a small proportion of the guaranteed sum.

Each case should be judged on its merits and contentious arguments should be referred to your Team Leader at an early stage.

  Additional Guidance: SVM150000