ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is in taxpayers’ favour in principle and may benefit some in practice. But the numbers affected and the amounts involved are likely to be small. Change 72: Interest relief: loan to pay inheritance tax: section 403
This change amends and simplifies the condition in section 364(1)(a) of ICTA for interest on money borrowed to pay inheritance tax to be eligible for relief.
Interest on loans to personal representatives to pay inheritance tax is eligible for tax relief subject to certain conditions. The condition in section 364(1)(a) of ICTA is that the loan to the personal representatives is to meet:
“before the grant of representation or confirmation, … inheritance tax payable on the delivery of the personal representatives’ account and attributable to the value of personal property to which the deceased was beneficially entitled immediately before his death and which vests in the personal representatives or would vest in them if the property were situated in the United Kingdom.”
The wording of this provision derives from the rules regarding estate duty payable in respect of personal property in the estate which the personal representatives were required to pay before they could obtain a grant of representation or confirmation. Duty on personal property was payable on death, whereas duty on real property was due on the first anniversary of the death. So relief was available on a loan to meet the tax payable before grant of representation or confirmation, but not tax payable later.
Under the inheritance tax rules, tax attributable to liquid or easily realisable assets is due six months after the end of the month in which death occurred, whereas payment of the tax attributable to other assets may be spread over ten years. Section 226(2) of IHTA requires personal representatives applying for a grant of representation or confirmation to pay all the tax for which they are liable on delivery of their account. In practice, this means all non-instalment tax and any instalments already due. So to give relief for interest on a loan to meet tax payable before grant of representation or confirmation it is only necessary to refer to tax payable under section 226(2). The reference to “personal property” is no longer apt.
Therefore section 403(2), which rewrites the condition in section 364(1)(a) of ICTA, simply refers to tax that the personal representatives are obliged to pay under section 226(2) of IHTA.