We have sought to address many of the concerns that have been raised. It is perhaps worth outlining the policy objective of limiting the deduction for liabilities. It removes a tax advantage that certain schemes and arrangements seek to achieve. It removes an anomaly in the current rules that may distort business financing decisions. The measures will ensure that the value of an estate that is subject to IHT reflects the normal economic consequences of incurring a liability. They support our policies on anti-avoidance and fairness.
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We have demonstrably listened to the concerns that have been raised. We are seeking not to prevent or deter individuals from starting a business or investing in an existing business, but to close down an avoidance opportunity. The change will not prevent a business from securing a loan against non-business assets or disrupt business activity. It will only remove the anomaly that can provide a tax advantage for restructuring debts in one way over another.
The amendments will improve the inheritance tax rules. They will bring greater flexibility and provide more individuals with the option to elect to be treated as UK domiciled for the purposes of inheritance tax. They will ensure that the new provisions in clause 174 and schedule 34 reduce potential tax losses and reduce the role of inheritance tax in business financing decisions, while minimising the impact on legitimate arrangements.