What is a specialty?
Under English law a specialty is a common law category of formal contract valid without consideration. Historically under English law, the usual form of specialty was an instrument under seal. A sealed instrument is one that is signed and has the seal of the signer attached. To render a contract a sealed instrument, it must be so recited in the body of the instrument and a seal must be placed after the signature. Following the enactment of the Law of Property (Miscellaneous Provisions) Act 1989 (an Act of Parliament), it is no longer necessary under English law for a deed to be under seal. Consequently, it is considered that deeds to which the Act applies are specialties even if they are not under seal.
Isle of Man law recognises the concepts of a deed and a specialty. The formalities of Isle of Man deeds differ from those of English deeds in two important aspects. Firstly, there are no stamp duties in the Isle of Man and secondly, the sealing of deeds is unknown in the Isle of Man except (optionally) by corporations/companies. Accordingly, it has never been necessary under Isle of Man law that an instrument be sealed in order to be a specialty. Although there is authority under Isle of Man law that any promise in writing to pay is a specialty debt, even if not executed as a deed, it is safer that an instrument intended to be a specialty under Isle of Man law is executed as a deed.
Circumstances in which a person may wish to create a specialty debt
In summary, it may be preferable in the case of a person not domiciled in the United Kingdom, that a debt to which he is beneficially entitled be a debt due under a specialty which is physically located in the Isle of Man, so that the debt is "excluded property" and therefore not subject to United Kingdom inheritance tax.
Section 6(1) of the Inheritance Tax Act 1984 (an Act of Parliament) provides that property situated outside the United Kingdom is excluded property if the person beneficially entitled to it is an individual domiciled outside the United Kingdom.
For inheritance tax purposes, a debt due on a specialty is situated in the country where the specialty is physically located. Thus the right to the repayment of a debt due on a specialty which is physically located in the Isle of Man should be excluded property for the purposes of the Inheritance Tax Act 1984 if the person beneficially entitled to the debt is not domiciled in the United Kingdom.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
