SVM108090 | Inheritance Tax: Guarantee Debts

IHTM28351 gives the background to guarantee debts and their treatment for IHT purposes. Section 162 (1) IHTA 1984 provides that “the liability is to be restricted to the extent that reimbursement cannot reasonably be expected.” See IHTM28354.

A valuer may need to consider whether a company (the primary debtor) could be expected to reimburse the guarantor (the deceased) of a guaranteed debt. The valuer may need to consider whether the primary debtor, was in a financial state to reimburse the deceased in respect of the debt at the date of death.

The valuer should take into account similar factors to those discussed at SVM108080 regarding loans due to deceased persons. If, for instance, the company is in a sound, profitable position, the valuer’s advice would generally be that there was no reason why the company should not reimburse the guarantor in full. Conversely, if the company is making losses and it is clear that, on a liquidation, there would be a large surplus of creditors over assets, the conclusion might be that the company could refund none or only a small proportion of the guaranteed sum.

Additional Guidance: SVM150000