Inheritance Tax Act 1984 section 162A

Liabilities attributable to financing excluded property

Section 162A restricts the deduction of liabilities used to finance the acquisition or maintenance of excluded property, preventing taxpayers from reducing their taxable estate by borrowing against property that is itself outside the scope of inheritance tax.

• A liability incurred to acquire, maintain or enhance excluded property generally cannot be deducted from the taxable estate unless specific conditions are met
• A deduction is allowed where the excluded property has been sold at full value and the proceeds remain within the taxable estate, provided those proceeds have not been reinvested in further excluded property
• A deduction is also allowed where the property financed by the liability has ceased to be excluded property and is now chargeable to inheritance tax
• Anti-avoidance rules prevent deductions where the liability exceeds the value of the excluded property due to deliberate arrangements, accrued interest or partial disposals designed to secure a tax advantage

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