IHTM28011 - Liabilities: restricted deductions: when the provisions apply
The restrictions contained in IHTA84/S162A-C and IHTA84/S175A only apply to deaths and other chargeable events that occur on or after 17 July 2013, although the restriction contained in IHTA84/S162AA only applies to deaths on or after 17 July 2014. Generally, where the restrictions apply, it does not matter when the liability was incurred, FA13/Sch36/Para5.
The exception to this rule is where the borrowed money was used to acquire, enhance or maintain assets that qualify for agricultural, business or woodlands relief (IHTM28019). In these cases the restrictions only apply to liabilities incurred on or after 6 April 2013.
In most cases, the terms for repaying borrowed money will be recorded by a written loan agreement. FA13/Sch36/Para5(3)(b) says that a liability is to be treated as incurred on the date the agreement was made. So the date of an agreement will determine whether or not the liability is affected by the restrictions contained in IHTA84/S162B (IHTM28019). Where a loan is refinanced, resulting in a new loan agreement being made, the date the liability was incurred is the date that the new loan agreement was made.
Without specific provisions to stop it happening, it would be possible to avoid the restrictions by arranging further loans to be made after 6 April 2013 under a pre-existing loan agreement. So, if an existing loan agreement is varied so that additional funds can be made available, the additional liability is treated as having been incurred on the date the agreement was varied, FA13/Sch36/Para5(3)(a).
If there is no written agreement recording the terms of the loan, the liability should be treated as incurred on the date the money is paid to the borrower.