Finance Act 2013

IHTA 1984

4 After section 175 (estate on death: liability to make future payments etc) insert—

“175A Discharge of liabilities after death

(1) In determining the value of a person’s estate immediately before death, a liability may be taken into account to the extent that—

(a) it is discharged on or after death, out of the estate or from excluded property owned by the person immediately before death, in money or money’s worth, and

(b) it is not otherwise prevented, under any provision of this Act, from being taken into account.

(2) Where the whole or any part of a liability is not discharged in accordance with paragraph (a) of subsection (1), the liability or (as the case may be) the part may only be taken into account for the purpose mentioned in that subsection to the extent that—

(a) there is a real commercial reason for the liability or the part not being discharged,

(b) securing a tax advantage is not the main purpose, or one of the main purposes, of leaving the liability or part undischarged, and

(c) the liability or the part is not otherwise prevented, under any provision of this Act, from being taken into account.

(3) For the purposes of subsection (2)(a) there is a real commercial reason for a liability, or part of a liability, not being discharged where it is shown that—

(a) the liability is to a person dealing at arm’s length, or

(b) if the liability were to a person dealing at arm’s length, that person would not require the liability to be discharged.

(4) Where, by virtue of this section, a liability is not taken into account in determining the value of a person’s estate immediately before death, the liability is also not to be taken into account in determining the extent to which the estate of any spouse or civil partner of the person is increased for the purposes of section 18.

(5) In subsection (2)(b) “tax advantage” means—

(a) a relief from tax or increased relief from tax,

(b) a repayment of tax or increased repayment of tax,

(c) the avoidance, reduction or delay of a charge to tax or an assessment to tax, or

(d) the avoidance of a possible assessment to tax or determination in respect of tax.

(6) In subsection (5) “tax” includes income tax and capital gains tax.

(7) Where the liability is discharged as mentioned in subsection (1)(a) only in part—

(a) any part of the liability that is attributable as mentioned in section 162A(1) or (5) is, so far possible, taken to be discharged first,

(b) any part of the liability that is attributable as mentioned in section 162B(1)(b), (3)(b) or (5)(c) is, so far as possible, taken to be discharged only after any part of the liability within paragraph (a) is discharged, and

(c) the liability so far as it is not attributable as mentioned in paragraph (a) or (b) is, so far as possible, taken to be discharged only after any parts of the liability within either of those paragraphs are discharged.”