The Inheritance Tax Manual Chapter 28 IHTM28351 gives the
background to guarantee debts and their treatment for IHT purposes.
As the IHT Manual says, s.162 (1) IHTA provides that "the liability
is to be restricted to the extent that reimbursement cannot
reasonably be expected." Generally, SAV’s involvement with
guarantee debts will take the form of advising the IHT caseworker
on whether and, if so, when the company (the primary debtor) could
be expected to reimburse the guarantor (the deceased); or whether
there was any danger that the company would not be able to meet its
liabilities. The background to such requests is usually that the
lender has called upon the guarantee, the estate has been required
to pay the guaranteed sum and it is claimed that that amount is a
valid deduction against the estate for IHT purposes. You are asked
to advise whether the primary debtor, the company, was in a
financial state to reimburse the guarantor in respect of the debt
at the date of death.
In advising the IHT caseworker, you should take into account
similar factors to those discussed in this chapter at
SVM108080 regarding loans due to
deceased persons. If, for instance, the company is in a sound,
profitable position, your 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.
Each case should be judged on its merits and contentious
arguments should bereferred to your Team Leader at an early
stage.
| Additional Guidance: SVM150000 |
