PAM Guide to Wealth Management


You only pay IHT on the net value of your estate. Loans can therefore be used to mitigate any potential IHT bill where an estate owes money. This is because they will be a debt against your estate, so will reduce your potential IHT liability.

However, there are restrictions on the offset of certain debts for the purpose of calculating liability to inheritance tax (IHT). Prior to this, where borrowing was secured against property, the value of that property would be reduced by deducting the borrowing. The extent to which such borrowing can be offset is now restricted in three ways:

  1. no deduction will be allowed for a liability where it has been incurred to finance the acquisition of excluded property¬Ě;
  2. where borrowing has been incurred to acquire assets which would qualify for agricultural property relief or business property relief, this borrowing will be taken to reduce the value of the IHT favoured asset in priority; and
  3. where a liability is outstanding at death, a deduction can only be made to the extent that it is repaid to the creditor, unless it can be shown that there is a commercial reason for not repaying the debt and it is not left unpaid as part of an arrangements to avoid tax.

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