Inheritance Tax Loan Change.

A change in the way loans are treated for inheritance tax (IHT) purposes could increase the taxable value of your estate on death, and the amount of IHT payable.

This change will affect IHT calculated on deaths occurring after the Finance Act 2013 is passed, (expected mid-July 2013) but applies to loans which are already in place.

At present any debts owed by the estate are deducted from the net estate after reliefs, such as business property relief (BPR), have been given. Broadly BPR provides 100% or 50% relief from IHT of the value of your business assets and unquoted shares. After the Finance Act 2013 is passed, the value of a loan must be deducted from the asset it was used to acquire.

Say in the past you increased the loan on your home to invest in your business, and that loan is still outstanding on your death.

To calculate the IHT due that business part of the loan must be deducted from the value of your business and not from the value of your home. This reduces the value of your estate exempt from IHT under business property relief, and increases the taxable value of the remaining estate.

Also if the loan owing at death is not actually repaid by the estate to the creditor after death, that loan can’t be deducted from the estate at all, unless there is some commercial reason for not repaying the loan.

Remember IHT is payable at 40% on the taxable value of your estate that exceeds £325,000. A lower rate may be payable if you leave at least 10% of your net estate to charity. There are other ways of mitigating IHT, but we need to discuss you individual circumstances to formulate a plan.

News / Blog

15th
February

Cracking Down on Tax Returns: How the Government is Miles Behind Target

It seems that the UK’s crackdown on Offshore tax avoidance has only managed to recover a third of the £1…

8th
February

Five Rules for Spotting and Avoiding Scam HMRC Emails and Phone Calls

Business owners usually receive dozens of emails a day. Many of them look very official, but how can you identify…

1st
February

HMRC Stop Thousands of Scam Messages

HM Revenue and Customs manages to stop thousands of taxpayers from receiving scam text messages.

23rd
January

HMRC reject credit cards for payments on account

Changes have taken place this month, which mean that personal credit cards can no longer be used as payment for…