Specialty debts and situs – changes to the IHT manuals

We reported in January 2013 that HMRC has made a small change to the IHT manuals regarding the situs of specialty debts, which had caused concern. Following discussions between the professional bodies and HMRC, the IHT manual has been updated again. 

A specialty debt is: 

  • a debt made by deed, or
  • a deed which records or creates obligations, or
  • a debt incurred by way of statute, or
  • a certain type of debt that is given the nature of a specialty debt by statute. 

Under the common law rules the situs of a specialty debt is where the relevant documentation is situated. In the 2013 change to the manual HMRC claimed that it had been advised that this interpretation was unlikely to be correct and that the debt was situated where the debtor resides. 

We met with HMRC shortly after the change and have had periodic meetings with them since, also involving other professional bodies, to discuss and try to agree the definition for the situs of a specialty debt.  

A major concern had been the impact on non UK domiciliaries where the 2013 change potentially brought an asset into the UK. 

The revised guidance has now been published by HMRC and in essence it says a specialty debt will be situated in the UK if it is secured solely on a UK asset regardless of where the debtor is. An unsecured specialty debt will generally be treated as sited wherever the deed is sited. However, if both debtor and creditor are UK resident and the deed has been removed from the UK then HMRC may challenge the situs.  

HMRC has updated the manuals and published this statement: 

“Following ongoing discussions with external stakeholders, HMRC has now published updated guidance on the Inheritance Tax (IHT) treatment of specialty debts. The revised sections of the IHT Manual can be found at IHTM27079, IHTM27080 and IHTM27104.”


The timing of the revision to the manuals is particularly important given the deadline for notifying HMRC of a requirement to correct before 30 September 2018 to avoid the new higher penalties. Non-UK domiciliaries should look at their affairs with regard to specialty debts and the new situs definition to assess if they need to bring their tax affairs up to date; for example there may be inheritance tax charges to report.