This will not only impact NON UK Domiciled individuals but also any other person subject to UK Inheritance Tax (IHT) on their worldwide assets.

NON UK Domiciled Person:

Were you intending to borrow monies against UK held property and invest these monies outside the UK, thereby converting these funds into excluded property not subject to UK IHT? Until 16 July 2013 the Loan could have been set off against the UK asset thereby reducing the estate chargeable to UK IHT. Since 17 July 2013 no deduction against the UK estate will be allowed unless very specific conditions are met.

All persons subject to UK IHT:

Until 5 April 2013, it was not uncommon to use as collateral a valuable asset which would attract a substantial IHT charge, to borrow monies which would then be used to acquire assets which would in time qualify for Business Property Relief (BPR) or Agricultural Property Relief (APR) thereby reducing the value of the estate chargeable to IHT. The portion of the loan outstanding at the date of death would have been deducted from the value of the property used as collateral and this could significantly reduce the amount of IHT payable.

Since 6 April 2013 there is no longer any IHT advantage to borrowing monies, using valuable non eligible assets as collateral, to acquire assets eligible to BPR or APR. The value of the loan will have to be set up against the BPR or APR eligible property and not against the general estate.

NB: – Any existing arrangements as at 6 April 2013 will continue to qualify under the old rules.

Other Loans: to qualify as a deduction in the estate a loan will have to be repaid on or after death, if not then no deduction will be allowed. There is on exception if the Personal Representative can demonstrate that there is a commercial reason why the liability is not being repaid, i.e. it is an arm’s length transaction.

If you would like advice regarding  your existing IHT arrangements or need assistance with future  Inheritance tax planning give us a call to discuss your circumstances…