SECTION 175 A (1)(a) IHT ACT 1984 – discharge of liabilities “out of the estate”

Where IHT is charged on the estate of a person who died on or after 17 July 2013 (date of Royal Assent to Finance Act 2013), a new s175A (1) (a) IHT Act 1984 provides that a liability is not to be taken in calculating the IHT liability unless it is “discharged out of the estate”. Clearly, this cannot be done until the personal representatives have obtained a grant of representation. To do this they will have filed an IHT account and paid IHT. Obviously the liabilities will have been included in the IHT account, and taken into account in calculating the IHT. How long do the personal representatives have in which to pay off the liabilities? The question is important, primarily, in relation to “non-commercial”, or “family” debts. In the case of debts owned to creditors who may be expected to pursue the liability the Capital Taxes office seem happy to leave it to the personal representatives and the creditor(who may be a different branch of HMRC) to resolve the matter. It is also accepted, in general terms, that the liability may be left unpaid if a commercial creditor would not require payment, eg because interest is paid.