SVM108090 - 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, section 162 (1) Inheritance tax Act (IHTA) 1984 provides that “the liability is to be restricted to the extent that reimbursement cannot reasonably be expected.” Generally, a valuer’s involvement with guarantee debts will involve considering 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. The valuer may consider 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.
The valuer 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, the valuer’s 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.
Additional Guidance: SVM150000