HMRC is wrong to treat specialty debts as situated where the debtor resides, rather than where the relevant document is found.
Individuals with a foreign domicile are only exposed to IHT irespect of assets situated in the UK. In general terms, assets situated outside the UK are excluded property – and outside the scope of the tax. Accordingly, identifying where an asset is situated is rather important.
Specialty debts – generally those due under a deed – are regarded as situated where the document is physically located.This has been the common law rule for centuries and has been acknowledged clearly by HMRC in its IHT Manual (IHTM27079. Not anymore. HMRC now says that this interpretation is unlikely to be correct and specialty debts should be treated for inheritance tax purposes as situated where the debtor resides, to correspond with the general rule which applies for simple debts.
*This article was first published in Tax Journal on 15 February 2013