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If a right to reimbursement exists, deduction of the liability is only allowed to the extent that reimbursement cannot reasonably be expected to be obtained¹. The correct approach in this situation is thought to be to make the best possible estimate of the amount likely to be obtained in reimbursement, based upon the facts known at the date of the transfer giving rise to the valuation of the estate, without regard to subsequent events — see Division I8.2 concerning the open market basis of valuation.

Example

J has, for full consideration, guaranteed K's unsecured overdraft at a bank.

If K has become bankrupt at the date of valuation (and all surplus assets go to secured creditors) and J has been called upon to pay, the amount he has to pay is deductible.

If K is solvent but has failed to repay the overdraft and J has been called upon to pay, the amount he has to pay, less the amount which he can reasonably expect to recoup from K is allowable.

The IHT legislation does