Q&As

Does section 103 of the Finance Act 1986 prevent the deduction of a liability where the subject matter of the loan had been redirected by the deceased (borrower) to the lender children under a deed of variation (in circumstances where the husband leaves property to wife, who redirects it to their children, who loan it to her)? How are lifetime gifts by the borrower to the lender treated?

read titleRead full title
Published on LexisPSL on 25/03/2020

The following Private Client Q&A provides comprehensive and up to date legal information covering:

  • Does section 103 of the Finance Act 1986 prevent the deduction of a liability where the subject matter of the loan had been redirected by the deceased (borrower) to the lender children under a deed of variation (in circumstances where the husband leaves property to wife, who redirects it to their children, who loan it to her)? How are lifetime gifts by the borrower to the lender treated?
  • IHTA 1984, s 142
  • FA 1986, s 103
  • Lifetime gifts from borrower to lender

Does section 103 of the Finance Act 1986 prevent the deduction of a liability where the subject matter of the loan had been redirected by the deceased (borrower) to the lender children under a deed of variation (in circumstances where the husband leaves property to wife, who redirects it to their children, who loan it to her)? How are lifetime gifts by the borrower to the lender treated?

There are two issues that need to be addressed:

  1. did the deed of variation satisfy the conditions of section 142 of the Inheritance Tax Act 1984 (IHTA 1984)?

  2. does section 103 of the Finance Act 1986 (FA 1986) prevent the deduction of a liability where the debt consists of property which was originally redirected by the deceased under a deed of variation?

IHTA 1984, s 142

Various conditions need to be satisfied in order for IHTA 1984, s 142 to apply.

One point to consider here is whether consideration was provided for the variation (eg the agreement or understanding that the children would loan the money back to their mother), which would make the variation ineffective for tax purposes (IHTA 1984, s 142(3)).

A further point to consider is whether HMRC may be able to attack the variation and loan back to the mother under the Ramsay approach in WT Ramsay Ltd v Inland Revenue Commissioners; Eilbeck (Inspector of Taxes) v

Popular documents