Technical Corner - Will Specialty Debts Become Less Special?

A person who is UK-domiciled is subject to inheritance tax (IHT) on worldwide assets. Someone who is neither domiciled nor deemed domiciled in the UK is subject to IHT solely on UK assets. The location of assets can therefore be significant. Most debts are situated in the country of residence of the debtor.

However, it has long been believed that debts made by deed ('specialty debts') are situated where the deed is. This is based on a common law principle originally established in the ecclesiastical courts that debts created under seal are capable of independent existence.

HM Revenue & Customs (HMRC) shared this view of debts made by deed until 23 January 2013 when an amendment crept into their IHT manual with no previous announcement. This made the rather tentative comment that they had been advised that their previous view was "unlikely" to be correct and that such a debt is located where the debtor resides.

HMRC has not given details of the advice it has received. Representations are being made on this front, and on the basis of the uncertainty this change of view creates. Will HMRC apply it only to future transactions, or seek to re- evaluate previous transfers?

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