Example 36:
Una died on 10 July 2021 leaving an estate valued at £625,000. Under the terms of her will, Una’s estate was left to her children. The estate included a main residence valued at £225,000 on which there was an outstanding interest-only mortgage of £130,000.
Una’s IHT liability is:
Chargeable estate 625000
IHT liability
420,000 (325,000 + 95,000) at nil% 0
205,000 at 40% 82000
My question:
Should the outstanding interest-only mortagage be deducted from the chargeable value of the main residence? Why the chargeable estate is still 625000?
Ask the Tutor ACCA TX-UK
technical articles Finance Act 2021 - IHT section working Examples 36
An intesrest only mortgage does not repay any of the capital owed and therefore cannot be deducted as the property is still in charge to IHT
thank you for your kindly reply.
But I still don't understand as I found in the study note page 132 "If a property held in the estate is mortgaged, the mortgage will reduce the property value if it is a repayment
or interest only mortgage".
Please give a more clear explanation. Thank you so much.
To be honest with you - that's confusing!
I agree that this is what the notes say on page 132
My example 36 question does not look like yours - are they from the same manual?
Or is this question from ACCA website?
Yes! actually the question is from ACCA website, It's in the technical articles Finance Act 2021 examples 36.
However I saw in other similar questions in BPP exam kit the answers have deducted the value of interest only mortgage from the value of residence.
Anyway thanks for your reply!
No worries
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