HMRC Changes View On Location Of Specialty Debts

The UK’s HM Revenue and Customs (“HMRC”) has recently changed its view about the location of specialty debts for inheritance tax (“IHT”) purposes. A specialty debt is simply an agreement to repay a loan which is set out in a document which satisfies the (relatively straightforward) formalities to be a deed.¹

Under HMRC’s previous practice, specialty debts were treated as located in the country or state where the deed containing the specialty debt was located. On 23 January 2013, however, HMRC announced that it regarded this as probably incorrect and that specialty debts should instead be treated for IHT purposes as located in the jurisdiction where the borrower lives or is resident.

This change of view is mainly relevant for non-domiciled individuals because of the rule for IHT that UK assets owned by a non-domiciliary are subject to IHT, whereas non-UK situated assets fall outside the scope of UK IHT.