IHT: Attribution of liabilities and business and agricultural property reliefs – A window of opportunity?

Schedule 34 of the Finance Bill contains provisions which will affect the way in which liabilities will be brought into an Inheritance Tax (IHT) computation. The details are discussed in more detail in the Briefing on p. 6 It is, of course a basic principle of IHT that the tax is based on the “transfer of value”. This is a disposition, as a result of which the transferor’s estate is reduced. In calculating the size of the transferor’s estate, both “before” and “after” the transfer of value, liabilities must be taken into account. Sometimes it is necessary to attribute a liability to a particular asset, so that it is a deduction primarily from the value of that asset. One well established example of this is s162 (4) IHT Act 1984, which requires that a liability, which is an incumbrance on any property , shall be taken as far as possible to reduce the value of that property. The corollary of this is, of course, that such a liability will not reduce the value of unincumbered property. The new provisions come into force when the Bill receives Royal Assent (See paragraph 5 of Schedule 34). For this reason, it was, and for a short while at least, will remain prudent to ensure that property qualifying for business and agricultural property reliefs is not incumbered by liabilities.