Following the changes to inheritance tax legislation in Finance Act 2013 HMRC have updated the relevant IHT manuals, forms and associated guidance notes.

The updates deal with all of the relevant changes to IHT which included reform of the IHT treatment of transfers between UK-domiciled individuals and their non-UK domiciled spouse/civil partner in two ways:

• the old nil rate band cap of £55,000 increased to the level of the prevailing nil-rate band level of £325,000; and
• under a new election regime, individuals domiciled other than in the UK and who are married or in a civil partnership with a UK domiciled person can now elect to be treated as UK-domiciled for IHT purposes.

The legislation also allows individuals who have become UK domiciled to make a retrospective election to cover an earlier period when they were non-UK domiciled. There is also provision for individuals whose marriage or civil partnership has been dissolved to make a retrospective election to cover the period they were married or in civil partnership with a UK domiciled person.

The treatment of liabilities at the date of death was also amended by including provisions that restrict when and to what extent liabilities may be deducted against the estate. The restriction will apply depending on:

• what the borrowed money was used for, or
• on death, on whether the borrowed money is repaid from the estate.

The restriction will apply where:

• the borrowed money was used to acquire, maintain or enhance excluded property (IHTM28014),
• the borrowed money was used to acquire, maintain or enhance assets that qualify for business, agricultural or woodlands relief (IHTM28019),
• on death, the liability is not repaid or discharged out of the estate (IHTM28027).

The restrictions apply to deaths, transfers and relevant property trust charges that occur on or after 17 July 2013.