HMRC to change IHT deduction laws

Her Majesty's Revenue and Customs (HMRC) will change the law regarding debts which aren't subject to inheritance tax.

Changes to the Finance Bill 2013 will be introduced in an effort to curb those who are deliberately creating artificial liabilities in order to avoid paying their fair share of IHT.

The new laws will clamp down on those creating contrived debts, which the creditor has no interest in collecting. An example of this could be property purchased off friends or family for an IOU.

The laws will also address those who use loans to purchase assets which are not subject to IHT or qualify for a relief, although there will be some exceptions.

According to ifaonline.co.uk, the Finance Bill 2013 will state that IHT deductions will only be allowed on debts that are repaid to the creditors.

It will also exclude all deductions on liabilities incurred as a result of IHT-exempt property acquisitions.

In a statement cited by citywire.co.uk, a HMRC spokesperson explained: "The measure is a response to avoidance schemes and arrangement which exploit the current rules that allow a deduction for liabilities owed by the deceased against the value of an estate regardless of whether or not the debt is paid after death."

The bill will come into play at the start of this tax year.