IHT relief for liabilities: non-sterling bank account loophole closed
Tue 01 Apr 2014
With effect from Royal Assent to FB 2014 a refinement to the FA 2013 provisions restricting relief for liabilities will close a loophole available to non-UK resident non-UK domiciliaries.
The new s 162A IHTA 1984, introduced by FA 2013, restricts the ability to claim a deduction for certain loans against an individual’s estate for IHT purposes. S 162A at present excludes loans used to acquire or finance the acquisition, maintenance or enhancement of business/agricultural property or of excluded property. The purpose behind this is to prevent an individual doubly reducing the value of their estate by acquiring exempt or excluded property funded by debt (which used to be deductible).
Non-resident non-UK domiciles are not liable to UK IHT on excluded assets or on non-sterling bank accounts held in the UK. When s 162A was drafted these bank accounts were not included in the range of assets covered. It is currently possible to secure a loan against UK-IHT taxable assets such as land and buildings, so reducing their value for IHT purposes, but use the loan to acquire a non-sterling bank account which, although not an excluded asset, is not chargeable to IHT on a non-resident non-dom.
The change will affect charges on death after Royal Assent, expected in mid to late July.
The change is covered by an HMRC TIIN.
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