SAIM10350 | Relief for interest paid: loan to pay inheritance tax

Loan to pay inheritance tax: ITA07/s403-5

In order for personal representatives of someone who has died to obtain a grant of representation or confirmation they have to pay the inheritance tax for which they are liable on delivery of their account under s226(2) Inheritance Tax Act 1984.

The personal representatives of someone who has died may obtain relief on interest on a loan taken out to pay inheritance tax (including any interest payable on that tax) or to pay off another loan that was eligible under section 403 if it had not been paid off.

Restrictions on relief

Relief is not available for interest on a loan to pay inheritance tax that falls due at a later date.

Interest on loans to pay inheritance tax is eligible for relief only if it is paid in respect of a period ending within 12 months of the loan being made. For example, if such a loan was taken out for a term of three years, only interest in respect of the first 12 months would attract relief.

Carry back and forward for interest on loans within S403

If relief cannot be given in the tax year in which the interest is paid because there is not enough income in the year then the relief can be carried back or forward in the following order:

• to the preceding tax year;

• and if there is not enough income in that year to the year before;

• and so on to any previous year.

If relief cannot be given in this way then it can be carried forward and applied:

• to the tax year following that in which the interest was paid;

• and if there is not enough income in that year to the following year;

and so on to any subsequent year.