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June 27, 2013
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Inheritance Tax & Loans Invested in BPR/APR Assets - Change to Proposed Rule

The Budget releases of 2013 included an unexpected anti-avoidance rule for Inheritance Tax.

The new rule is that liabilities must be set against the property that the funds were used to acquire.  The effect this rule is that loans taken out to invest in assets that reduce the net value of the estate such as Agricultural Property Relief (APR) and Business Property Relief (BPR) will not be deductible from the IHT estate.

This rule will be operative from the date on which the Finance Bill receives Royal Assent.  However, many commentators had pointed out that it was structured in a retrospective manner as it would affect the estates of people who died after Royal Assent but who had taken out loans, in good faith, many years ago.

This point was raised recently during a commons debate and the Treasury Secretary committed to an amendment to the legislation such that only loans taken out on or after 6 April 2013 will not be deductible.

This is good news for those taxpayers that already have arrangements in place in which loans were used to acquire APR and BPR qualifying assets.

The Treasury Secretary also attempted to defend the reasoning why this rule had not been consulted on before its announcement.

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