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FA86/S103 is intended to prevent the avoidance of tax through the ‘artificial creation� of liabilities which would normally be allowable as deductions. Broadly, the rules apply when the deceased has both borrowed money from someone and made a gift to that same person. The following is an example of the type of arrangement the legislation is designed to prevent

Example

Andrea gives land valued at £100,000 to Boris

Boris raises £100,000 by way of mortgage and advances this sum to Andrea.

Andrea dies 8 years later with the whole sum outstanding and having regularly acknowledged the debt to Boris.

The gift by Andrea escapes tax as a PET (IHTM04057) made more than 7 years before death while the £100,000 debt is claimed as a deduction from Andrea’s estate.