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Where a person’s estate includes a qualifying foreign currency bank account (IHTM04380) which meets the conditions of IHTA84/S157 and estate also includes a liability where the borrowed money was used either directly or indirectly to finance the balance in the account, IHTA84/S162AA provides that the liability may only be allowed as a deduction against the estate to the extent that it exceeds the balance on the account, IHTA84/S162AA(3).

However, that excess may only be deducted if it has not been brought about by one or more of the reasons listed in IHTA84/S162AA(4), which are that:

• the excess arises from arrangements, the main purpose, or one of the main purposes of which was to bring about a tax advantage, or
• the amount of the liability has been increased because interest has been added to the amount due or the amount to be repaid has increased in some other way.

»Ê¹ÚÌåÓýapp meaning of ‘arrangementsâ€� is defined in IHTA84/S162AA(5) and includes any scheme, transaction, or series of transactions, agreement or understanding whether or not legally enforceable, and any associated operations (IHTM14822).

In view of the definition of ‘tax� in IHTA84/S272, a tax advantage here means an Inheritance Tax advantage. This is defined in IHTA84/S162AA(5) as meaning the avoidance or reduction of a charge to tax or the avoidance of a determination of tax.

Example

Roberto borrows £1m which he charges on his UK property worth £1.5m. He puts the borrowed money into a US dollar account with a UK bank. On his death, the balance in the account has grown to £1.2m. »Ê¹ÚÌåÓýapp US dollar account is left out of account on Roberto’s death, but the liability of £1m is disallowed by IHTA84/S162AA because it was used directly to fund the balance on the account. If the balance on the account was less than £1m on Roberto’s death, the excess of the liability over the balance could be allowed as a deduction, provided the excess does not result from arrangements designed to secure a tax advantage.