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March 20, 2013 8:03 pm
Tax avoidance schemes used to reduce inheritance tax (IHT) came under fire as part of the government’s anti-avoidance strategy.
New rules introduced in the Budget will restrict the ability for individuals to deduct “contrived” liabilities from a deceased person’s estate.
HM Revenue & Customs (HMRC) said: “The measure is a response to avoidance schemes and arrangements 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.”
It said some current arrangements involve contrived debts which are subsequently not repaid so there is no real reduction in the value of the estate, while others involve loans which qualify for a relief, so that the individual benefits from a double reduction in the value of the estate.
For example, a wife might sell an asset to her husband in return for a loan note. He is then able to use the asset during his lifetime but when he dies the loan can be deducted against the value of his estate, despite his wife having had no intention of ever recalling the debt.
The measure will take effect once the Finance Bill receives Royal Assent.
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