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HMRC publishes revised guidance on IHT treatment of speciality debts

Following ongoing discussions with external stakeholders, HMRC has published updated guidance on the inheritance tax treatment of specialty debts.

Typically, a specialty debt is a debt often made by a type of legal document known as a deed and can be either a secured debt or unsecured debt. Inheritance tax is payable in the country where the speciality debt has legal jurisdiction.

Historically, the legal jurisdiction of a specialty debt (whether secured or unsecured) depended on where the documentation evidencing the debt was physically located.

In 2013 HMRC changed this approach and said that speciality debts had legal jurisdiction in the country where the debtor lived.

Now HMRC has changed their guidance once more. The legal jurisdiction of a specialty debt now depends on whether the specialty debt is secured or unsecured.

  • Secured speciality debts – if the security is solely on a UK situated asset, the legal jurisdiction and where inheritance tax is payable, will be the UK, regardless of where the debtor lives.

  • Unsecured speciality debts – broadly follows the pre-2013 approach. The legal jurisdiction depends on where the documentation evidencing the debt is situated. However, if the creditor and the debtor both live in the UK but the documentation is removed from the UK, HMRC may argue inheritance tax is still payable in the UK.

Top Tip: If you are not living in the UK you should review your debts, particularly debts which are secured over UK assets as this may now mean inheritance is payable to HMRC when it was not before.

For tax advice please contact Graeme Perry, Head of UK and Cross Border Tax.