BPR, APR, woodlands relief and the deduction of debt

Produced by a Tolley Trusts and Inheritance Tax expert

Trusts and Inheritance Tax

Guidance

This guidance note details the rules about the deduction of liabilities from assets which qualify for BPR, APR and woodlands relief as set out in IHTA 1984, s 162B. The rules were introduced in Finance Act 2013 to reduce tax planning around the deduction of such liabilities.

Debts owed by the deceased (for transfers on the death of an individual) will be disclosed on IHT419. HMRC will pay special attention to investigating these debts.

How liabilities are deducted for IHT purposes

When valuing an asset for IHT purposes, any liability attached to the asset is deducted from that asset when arriving at its net value. Therefore, a property which is mortgaged will be valued at the market value of the asset less the value of the liability, that is at its net value.

Before Finance Act 2013, this led to planning opportunities. A private residence worth £2m could be mortgaged to finance property qualifying for BPR. On a chargeable transfer, the mortgage would reduce the value of the private

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