Administration (2): account to HMRC

Question 1

What two duties do the PRs of an estate have under s 216 IHTA?

Answer 1

• Deliver an account to HMRC regarding the deceased’s estate
• Pay any IHT due

Question 2

What must the account delivered to HMRC specify?

Answer 2

• All of the property comprising the deceased’s taxable estate immediately before death and the value of each item at the date of death
• The exemptions and reliefs that apply.

Question 3

What is the deadline for submitting the account to HMRC?

Answer 3

12 months from the end of the month in which the death occurred.

e.g. If the deceased died on 15 March the IHT account would need to be submitted by 31 March the following year.

Question 4

When is the deadline for paying IHT?

Answer 4

6 months from the end of the month in which death occurred, after which interest becomes payable on the unpaid tax.

If the deceased died on 15 March the IHT should be paid by 30 September.

Question 5

Why must the PR submit the account and pay IHT as soon as possible?

Answer 5

The grant will not be issued until information about the estate has been provided to HMRC and any IHT has been paid; the PRs need the grant to carry out the administration.

Additionally, payment of interest on unpaid IHT should be avoided.

Question 6

Do you pay interest on unpaid IHT?

Answer 6

Yes

Question 7

How many equal annual instalments can the IHT due in respect of certain assets be paid?

Answer 7

The IHT due in respect of certain assets may be paid by 10 equal annual instalments.

Instalment is another option instead of paying in full.

Question 8

When is the first instalment due for IHT?

Answer 8

The first instalment is due by the usual deadline (i.e. six months after the end of the month in which the deceased died).

Question 9

When are the remaining instalments due?

Answer 9

The remaining instalments are due on each subsequent anniversary date, with interest charged on any IHT that remains outstanding after the initial deadline date.

Question 10

Instalment options are only available in respect of the IHT attributable to which assets?

Answer 10

• Land and buildings
• Company shares/securities giving the deceased control
• Some unquoted company shares/securities that did not give control but where payment cannot be made without undue hardship
• Farms or interest in a farming business
• Business or interest in a business
• Timber

Question 11

What happens if any property to which the instalment option applies is subsequently sold?

Answer 11

The instalment option ceases in relation to that property. The outstanding IHT on that property is due immediately and the sale proceeds are available to meet this liability.

Question 12

Which form do the PRs complete to report to HMRC about the estate assets and liabilities?

Answer 12

Form IHT 400 (IHT account).

Question 13

What happens if the estate is excepted?

Answer 13

The PRs are not required to complete an IHT400. Instead, they provide information about the value of the estate as part of the application for the grant.

Question 14

What are the two categories of excepted estate for those domiciled in the UK?

Answer 14

• Low value excepted estate
• Exempt excepted estate

Question 15

What is a low value excepted estate?

Answer 15

A low value excepted estate is one where there is no IHT payable because the gross value of the estate is below the NRB.

Question 16

What is the gross value of an estate?

Answer 16

The gross value is the total taxable estate figure plus the value of certain ‘specified transfers’ plus the value of ‘specified exempt transfer’.

Question 17

What do specified transfers include?

Answer 17

Specified transfers include chargeable transfers made in the 7 years before death comprising cash, chattels, shares or land.

Question 18

What do specified exempt transfers include?

Answer 18

Specified exempt transfers include exempt gifts to spouses/civil partners and charities.

Question 19

When determining if the gross value of the estate is below the NRB, what must be referred to?

Answer 19

You need to refer to the current NRB amount + any TNRB from their spouse.

Question 20

Is the residence NRB (‘RNRB’) considered when determining if the gross value of the estate is below the NRB?

Answer 20

No - the residence NRB (‘RNRB’) is not considered and if claimed, the estate cannot be excepted.

Question 21

What is an exempt excepted estate?

Answer 21

An exempt excepted estate is one where the gross value of the estate is no more than £3 million, but no IHT is payable, and the net value of the estate is below the NRB after debts are deducted and spouse and/or charity exemption are applied.

Question 22

What factors prevent an estate from being excepted?

Answer 22

• The deceased made a GROB that subsists at death
• The estate includes either more than one trust interest, or a single trust interest worth more than £250,000
• Foreign assets are worth more than £100,000
• The value of specified transfers exceeds £250,000
• A claim for the RNRB is being made.

Question 23

What is an IHT 421 (the probate summary)?

Answer 23

It contains details about the deceased and a summary of the gross/net succession estate. It is no longer necessary to complete and submit an IHT421 to HMRC with the IHT 400.

Question 24

What values are relevant for IHT purposes?

Answer 24

It is the date of death values which are relevant for IHT purposes and when completing the IHT 400.

Question 25

What is loss relief?

Answer 25

Loss relief entitles the PRs to claim a partial refund of IHT where losses occur on the sale of certain assets within prescribed time frames.

Question 26

What happens if the PRs discover later that the date of death information provided in the IHT400 was inaccurate?

Answer 26

This must be corrected. Revised information is set out in corrective account Form C4.

Question 27

What four things does the C4 inform HMRC about?

Answer 27

• Additional assets/liabilities discovered after the IHT 400 was submitted • Corrections to the value of assets/liabilities originally included in the IHT400 • Changes to exemptions/reliefs applied • A variation of the original beneficiary entitlements which affect the IHT liability.

Question 28

What should the PRs do if new assets are discovered or values change?

Answer 28

The PRs should pay the additional IHT due when sending HMRC the C4.

Question 29

What should the PRs do if new liabilities are discovered or values change?

Answer 29

The PRs will claim a refund of IHT already paid.

Question 30

How do PRs pay the tax due if they cannot access the deceased's assets without a grant?

Answer 30

• Direct Payment Scheme • Borrowing

Question 31

What is the Direct Payment Scheme?

Answer 31

PRs can ask banks to make a direct payment from the deceased's account(s) to HMRC by telegraphic transfer. PRs must complete schedule IHT 423.

Question 32

Who can PRs borrow money from to pay IHT?

Answer 32

• From a beneficiary (often interest free) • From a bank, where commercial rates of interest will apply.

Question 33

What can personal representatives apply for to avoid taking out a commercial loan?

Answer 33

A grant of representation on credit.

Question 34

What must be paid if a grant of representation on credit is issued?

Answer 34

The outstanding inheritance tax due must be paid by the deadline set by HMRC.

Question 35

Does obtaining a grant of representation on credit alter the deadline for paying inheritance tax?

Answer 35

No, it does not alter the deadline by which inheritance tax must be paid.