Commentary

I4.146 Liability to make future payments

IHT, trusts and estates

I4.146 Liability to make future payments

I4.146 Liability to make future payments

A deductible liability that is only payable at some time after death may have to be discounted when assessing its value for deduction purposes1 (see I3.237).

Example

H dies, leaving a debt of £10,000 repayable, without interest, in three years' time. Full consideration was given for the debt.

The £10,000 is discounted, on the death of H, to take account of the fact that his estate has the use of the money interest free until the date of repayment.

If, however, the debt had carried interest at what was a commercial rate of interest at the date of valuation, no discount would have been necessary. Where a notional rate of interest has to be assumed HMRC normally uses the mean of the interest rates prescribed for IHTA 1984, s 50 (income rates on settled property — see I5.212).

Where a non-commercial rate of interest is used, the discounted value is calculated using the mean interest rate after allowing for any interest payable. The rate of discount will obviously vary according to market conditions2.

The position of liabilities owing at the date of death, but which were not paid thereafter has historically been rather unclear.

If the liability is released without payment during the administration period, it will be appropriate to notify HMRC by way of a corrective IHT account.

If however the liability is left unpaid and is not

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