Dealing with the Revenue

I have dealt with HM Revenue and Customs countless times in high value estates. The key to dealing with the Revenue is to supply as much full and cogent information as can possibly be supplied at the start. The less queries that arise on the initial Inheritance Tax (IHT) account submitted, the less chance there will be that there will be a protracted period of corresponding with HMRC or worse, a “compliance check” when the Revenue go through everything with a fine toothcomb.

The Revenue are very slow, require everything in hard paper copy form and are difficult to speak to anyone over the telephone who is anything more than a conduit to the back office staff who process the returns. As such the more that can be done “up front” to avoid the Revenue having to ask questions, the quicker everything can be processed. At a time when people are grieving, the last thing they really want is unnecessary hassle with the Revenue.

What is an Inheritance Tax account?

This is known as form IHT400 which has numerous supplementary forms which have to be completed depending on the circumstances of the deceased. If the estate is taxable or if it exceeds a certain value, a form IHT400 must be completed by the executors. It is a long form and in some cases, with the various documents that have to be included, it can resemble a short book!

What are the deadlines involved?

An IHT return must be sent to the Revenue within one year of the deceased having died. If it is not, the Revenue will normally issue a penalty (a fine).

Inheritance Tax (or the minimum amount at least) must be paid before the Grant of Representation can be applied for. It should also be paid within 6 months starting from the end of the month in which the deceased passed away. as such if someone dies in January, the IHT payable will be due by the end of July. Any IHT that is not paid after this point in time will start to accrue interest at, currently, a horrific rate of 7.75% per annum. It is therefore very important to pay as much tax ass can be paid within the 6 month deadline.

How can the tax be raised?

Most banks (and many other organisations) will release funds directly to the Revenue once the correct documentation has been supplied to them. If someone dies and has little in the way of ready cash or assets which can be liquidated (which, to be fair, is a fairly infrequent occurrence nowadays) then ether a loan could be obtained by the personal representatives or the Revenue could be asked to supply a Grant “on credit” meaning they will authorise the Probate Registry to issue the Grant on the basis that as soon as some cash is available in the estate, they are then paid plus interest.

When is an estate taxable?

Whether an estate is liable to IHT will depend on numerous factors to include the circumstances of the deceased, the value of their estate, whether any reliefs apply and who the beneficiaries of the estate are. Generally, if someone dies and they are leaving their estate to their spouse, there cannot be any IHT payable because of the spouse exemption. The same applies if their estate is passing to charity under the charity exemption.

If an estate exceeds all of the available nil rate bands, reliefs and exemptions applicable, then any surplus value will be subject to IHT at a hideous rate of 40%.

Can IHT be paid in instalments?

Yes, and no.

It is possible to pay IHT due on land and some shares over 10 years. The Revenue call this instalment option property. Interest will continue to run on any IHT on instalments.

All other assets (non-instalment option property) will be liable to IHT immediately and will be payable as described above.

What about property valuations – can I just put in what I think the property is worth or maybe what a property valuation website suggests?

If an estate is taxable, it would not generally be a good idea to do this. The Revenue expect personal representatives to be as accurate as possible with valuations and can potentially fine them if they think not enough care has been taken in ascertaining a value. If, for example, a valuation was given by the Personal Representatives for a property at a particular sum, and then the property sold for more money shortly after the date of death, the Revenue could well penalise the Personal Representatives with a fine. The sure fire way to prevent this form happening is to obtain a valuation from a Chartered Surveyor. If the property then sells for a greater amount shortly after the date of death, the executors cannot be penalised as they have taken professional advice.

What if shares or a property sell for less money than the value initially reported to the Revenue?

If this happens then subject to some clear deadlines, it is possible to reclaim the overpaid IHT back from the Revenue.

Is it possible to obtain confirmation from the Revenue they are happy with everything and will be closing their file?

Yes, this is possible. A applciation should be made for Inheritance Tax clearance and the Revenue will then provide a lettter bearing a code indicating that they are satisfied, subject to some caveats, that all tax has been paid and that they will not be looking to charge any further IHT (other than any remaining IHT still being paid on instalments).