IHTM28110 - Investigating liabilities: future debts

If a liability does not fall to be discharged until a future date it is taken into account at its discounted value rather than at the amount eventually to be paid, IHTA84/S162 (2). So debts payable at a future date without intermediate interest (or with interest at less than the market rate) are to be discounted. The rate of discount will obviously vary according to market conditions.

You should consult the BAO if the debt has been included at a figure of £5,000 or more and the above factors are present.

This rule does not apply to the deceased's liability to IHT, which is taken into account at the full amount whenever due, IHTA84/S162 (3). Nor does it apply where there has been a change of accounting basis for a trade, profession or vocation giving rise to a significant increase in income tax which may be spread over ten years, FA88/S44. The personal representatives have the option to accelerate the payment and in the circumstances a discount is not appropriate.

The introduction of self-assessment (SA) has meant that income tax liabilities may not be payable until some time after the date of death and may need to be treated as a future debt. It is also possible for CGT liabilities to be payable after the date of death.