Welcome to the August edition of the Inheritance Tax & Trusts Newsletter. If there are any issues you would like us to address in a future edition, please email our customer service team.
David Shaw
Head of Inheritance Tax & Trusts
The HMRC Probate & Inheritance Tax Helpline dealt with over 300,000 calls and requests for forms in the period from April 2008 to March 2009. The main aims of the helpline continue to be:
The December 2008 edition of the Newsletter drew attention to
the work undertaken over the previous six months to transform HMRC's online
material. With this in mind, before you contact the HMRC Inheritance Tax & Probate Helpline please look at the Inheritance Tax section on the HMRC website.
The Helpline is overburdened with calls from practitioners about topics where
there is help available from this website.
If you are completing a form please ensure that you have read the relevant sections of the notes on and accompanying the form. If you then still need to call the Helpline your call can be dealt with more effectively as you will have all the information to hand.
The HMRC Probate & Inheritance Tax Helpline will not:
We are also unable to give advice on the completion of forms that are the responsibility of other areas of HMRC, such as the R185 and the R27 (except for the questions about probate).
In a similar vein to the introduction of a single penalty regime (see the April 2009 Newsletter) HMRC has introduced a common interest rate regime that will apply across all taxes and duties. The legislation is contained in sections 100 - 103 and Schedules 53 & 54 Finance Act 2009 and the Taxes and Duties (Interest Rate) (Amendment) Regulations Statutory Instrument 2009/2032 came into effect on 12 August 2009.
The effect of the regulations is that the current Inheritance Tax interest rate of 0 per cent for both charging and repaying interest will remain in place until new rates are set by reference to the September meeting of the Bank of England's Monetary Policy Committee.
With effect from September, the current single rate of interest for Inheritance Tax, Capital Transfer Tax & Estate Duty will be replaced by one rate for charging interest on unpaid tax and another, lower, rate for the repayment interest supplement that is added to repayments.
The regulations stipulate that the rate for charging interest on unpaid tax will be the Bank of England base rate + 2.5 per cent. The rate of interest that will be paid on repayments of tax and interest will be the Bank of England base rate - 1 per cent, although the rate for the repayment interest supplement is subject to a floor of 0.5 per cent.
Participants in the workshops that HMRC Inheritance Tax ran at the Annual Probate Section Conference on 3 July 2009 in London raised various queries. HMRC Inheritance Tax agreed that, to enable everyone to have access to their responses, they would publish them in this edition of the Inheritance Tax & Trusts newsletter, as follows.
This increased to £325,000 on 6 April 2009. The limit below which low-value estates qualify as excepted estates remained at £312,000 for grants taken out before 6 August 2009 and rose to £325,000 after that date.
Where the value of real or leasehold property has been accepted as returned, or agreed through negotiations, and tax has been paid and accepted based on that value, then that valuation is final. The valuation can only be re-opened if it can be shown that:
If a valuation is to be re-opened, it will be carried out by the District Valuer. The recent fall in property values alone is not sufficient reason to re-open an earlier value, as that will have been agreed taking into account the facts and circumstances as they were known at the date of death.
Whilst each case is dependent upon its own facts, if instructions for the valuation of a property are given on the correct basis i.e. as a hypothetical sale in the open market under normal market conditions and marketed properly with no discounts for a quick sale or the time of year etc, then any uplift in value that is agreed is unlikely to attract a penalty.
The feeling amongst many participants at the conference was that to be confident this approach can be demonstrated, three valuations from different estate agents were preferable, or an RICS valuation if a definitive figure is required. Whilst this will go a long way in demonstrating that the liable persons exercised reasonable care, the most important questions for HMRC are about the actual steps that were taken: Was professional advice sought? Were instructions given on the correct basis? Was the valuers attention drawn to particular features of the property (such as development potential)? Was anything unusual about the valuation questioned? The answers to these questions will help demonstrate whether reasonable care was taken or not.
Normal practice is to wait until all the actual figures are obtained before submitting a corrective account, but with the introduction of the new approach to penalties in HMRC there are concerns about how the any time delay may affect the position. The HMRC Inheritance Tax view is as follows:
These are an asset of the estate and the value should be included at box 56, whether or not the arrears have actually been paid when the IHT 400 is submitted. A corrective account is only needed if the arrears, when paid, are different from the amount the executors estimated initially.
The extensions of the Inheritance Tax reliefs for agricultural property (APR) and woodlands (WR) enacted in the Finance Act 2009 apply from 22 April 2009.
Inheritance Tax relief is also available on qualifying property where Inheritance Tax was either due or paid on or after 23 April 2003. In order to qualify for relief the property must meet the usual conditions for APR or WR, as appropriate, and must be located in an EEA state at the time of the event chargeable to Inheritance Tax. All claims for relief must be made by 21 April 2010.
If you are making a retrospective claim for relief please do this by making a claim (and, for WR, an election under section 125 Inheritance Tax Act 1984) in writing quoting the Inheritance Tax file reference, name and date of death of the deceased and head your letter 'Retrospective claim for APR and/or WR for land in EEA.
The claim will then be considered by the Inheritance Tax Technical team and if necessary a retrospective IHT 414 or D13 and IHT 417 or D15 may be requested.
Claims for APR for cases where an IHT 400 was submitted on or after 22 April 2009 must be made on form IHT 414 and be accompanied by form IHT 417 if one was not originally submitted.
As the standing procedure for claiming Woodlands Relief is by making an election in writing there is no change to the process. This election should be accompanied by form IHT 417 if one has not already been submitted and headed Claim for Woodland Relief for land in EEA. The Inheritance Tax reference, name and date of death should also be included.
The relevant chapters of the Inheritance Tax manual will be updated shortly.
For the majority of taxpayers HMRC is moving away from interventions after an error has been made towards a new relationship focused on help and support to ensure that returns are correct. After consulting with agents and representatives on the best ways to improve processes, HMRC is developing a series of toolkits providing support to help improve the accuracy of returns. The toolkits are not meant to be a comprehensive statement covering all risks but will enable HMRC to share its perspective on the common risks and errors when completing a return. The toolkits will all be in a similar format with a checklist, explanatory notes of the risk and links to further guidance.
Inheritance Tax & Trusts is developing a toolkit as part of HMRC's Pre-return Support for Agents Project. A toolkit for Capital Gains Tax for Trusts supporting the SA 905 return has already been prepared. The four categories of risk identified in the Trusts Toolkit are; incomplete information, valuations, applying the correct rules and record keeping. The Trusts toolkit is currently out for trial and has received a positive response from the volunteers taking part in the pilot.
Work is in progress on a similar package for Inheritance Tax addressing a different set of risks. Volunteers are currently being sought to take part in a pilot towards the end of the year to try the new toolkit and provide some constructive feedback. Toolkits are also being developed for Capital Allowances (plant and machinery), Marginal Small Companies relief, Capital Gains Tax (land and property) and personal and private expenditure. If you wish to participate and play a part in the development of this or any of the other toolkits, please send an e-mail via our website .
An integrated version of the IHT400 suite of forms will be published shortly on the website to make completion of the account simpler. This will consist of a 'zip file' containing all of the forms and a user guide. It is important that you read the user guide before you attempt to use the IHT400 integrated account as it contains detailed instructions on its use.
You will need to obtain Adobe Acrobat 7 Standard (or newer) if you want to use the integrated account because Adobe Reader will not allow you to save completed copies of the account and due to its size it is not a viable proposition to complete and print out the form without saving a copy.
HMRC Inheritance Tax would welcome feedback on the integrated account by email to the Customer Services Team.
You can find the integrated account by following 'find a form' on the quick links menu on the Home page of this website and searching for 'IHT400' or follow the link below:
Practitioners who deal with the sale of tax-exempt national heritage property have asked us to publish the tables of Estate Duty rates as these are not currently available on our website.
As these tables will be used by a relatively small number of practitioners we have instead produced zip files containing all the tables. Separate zip files for England & Wales and Northern Ireland are available on request.
If you would like copies of the zip files, please contact Tom Eyre by email stating which tables you require and he will be pleased to email you copies.
A new chapter of the IHTM on transferable nil rate bands will be published shortly. The new chapter will replace the interim guidance previously published on our website.
HMRC Trusts has made two recent announcements on the Internet
The first tells you that letters confirming that trust returns have been received and processed without amendment will no longer be issued.
The other announcement concerns returns that may be rejected by the Self Assessment gateway.
Finally, you may be aware that HMRC Trusts has been experiencing some problems with some information not coming through the portal. This mainly concerned section 9 of the return and the details on the supplementary capital gains and foreign pages. HMRC Trusts is pleased to say that these problems are now resolved. If you have already submitted a return online, you need do nothing more at this time. If HMRC Trusts needs to discuss any of the information contained in return, you will be contacted over the telephone or in writing.
HMRC Trusts is very sorry about the inconvenience caused by these online filing problems.
HMRC Trusts is aware of the current confusion regarding the income tax treatment for trustees of both interest in possession trusts and settlor-interested trusts in relation to the new UK tax credit on foreign dividends. HMRC Trusts is sorry about this and has now taken steps to rectify the position.
Basically, this new credit is an extension of the credit on UK dividends although in the case of foreign dividends it will not apply if:
On one interpretation of the relevant legislation, trustees of an interest in possession trust or a settlor-interested trust are not entitled to these tax credits. In practice, however, as we have always done for UK dividends, trustees are given the benefit of the tax credit and this is passed on to the beneficiaries. The SA904 (Trust and Estate Foreign pages) for 2008-09 and its supporting calculation give effect to this and produce the correct outcome.
However, the guidance given on page TFN5 of the SA904 Notes (notes on the Trust and Estate foreign pages) does not follow this approach. This is counter to the way the calculation works and is causing confusion. This guidance has now been withdrawn. A revised version of the SA904 Notes will be available online shortly (unfortunately, we will be unable to change the printed paper version until 2009-10).
There is no need to contact HMRC Trusts if you have already submitted your Trust & Estate Tax Return for 2008-09 which includes an SA904. These Returns can be identified and revised to take into account this change. Where HMRC Trusts has already processed a Return, you may receive a fresh calculation in due course.
If you are the trustee of an interest in possession trust or settlor-interested
trust you will automatically be given this new tax credit if you complete
box 4.2 on the SA904 - do not exclude all foreign dividends by putting
them in box 4.2B. Box 4.2B should only show the amount of the dividends
which do not qualify for this credit.
This new tax credit is one-ninth of the amount of the dividend and has to be
added to that amount before the tax is calculated. For example, if the dividend
is £90
(including withholding tax) the tax credit is £10 and the amount on which tax is charged is £100. In other words, the tax credit is 10 per cent of the grossed-up amount and
not 10 per cent of the dividend itself.
The way the calculation works is that all dividends included in box 4.2 are automatically grossed-up to give the non-payable tax credit. Dividends that do not qualify for the credit are included in box 4.2B and are subtracted from the amount in box 4.2. Only the remaining balance in box 4.2 is grossed-up.
Other points:
Dividend £500
Gross dividend £555 (£500
x 100/90)
Tax credit £55.50 (£555 x 10%)
If the total dividend income qualifies for the tax credit and there is nothing included in box 4.2B you do not need to claim any FTCR at box 4.9.
If foreign tax has been paid (withholding tax shown in column
C) then FTCR
can be claimed on this income by completing box 4.9.
Dividend £500
Gross dividend £555 (£500
x 100/90)
Tax credit £55.50 (£555 x 10%)
If foreign tax has been paid (withholding tax shown in column C) then FTCR can be claimed on this income by completing boxes 4.9 and 4.9A.
If foreign tax has been paid (withholding tax shown in column C) then FTCR can be claimed on this income by completing boxes 4.9 and 4.9A.
HMRC Trusts is also aware that there may be some confusion regarding the completion of section 7 (foreign income) on the form R185(Trust Income). Here are some additional notes to help trustees complete this box.
(The taxable amount is the total of the net amount plus the UK
tax paid plus the foreign tax paid and any foreign tax credit that may
be due. On a separate sheet, tell the beneficiary what type of income this
is, so they can complete the Foreign pages on the Tax Return)
£
Include here the amount of income before deducting any UK, foreign
or Special Withholding Tax - the beneficiary should transfer this figure
to column B on the SA106 (individual's foreign pages).
UK tax paid on box 7 income
£
The beneficiary should transfer this figure to column D on the SA106.
Foreign tax paid on box 7 income
Foreign tax is the lower of the foreign tax actually withheld and the amount
of tax to which the trust was liable under the terms of a Double Taxation
Agreement.
£
The beneficiary should transfer this figure to column C on the SA106.
You will see that the current version of the R185(Trust Income) does not have a separate box for the amount of foreign dividends that do not qualify for the new UK tax credit. Please show this figure on a separate sheet when telling the beneficiary what type of income this is. The beneficiary should transfer this figure to box 7 on the SA106. Form R185(Trust Income) will be revised in due course.
As part of its review of extra-statutory concessions, following the judgment of the House of Lords in the Wilkinson case, HMRC has decided to put the existing concessionary tax treatment of Extra-statutory Concession A68 on a statutory basis. A technical consultation on the draft legislation of this and certain other concessions being legislated was announced on 15 July 2009.
This particular concession allows trustees of UK resident employee benefit trusts to claim compensation payments in order to alleviate the effect of a double charge to tax on trust income. The double charge would otherwise arise because discretionary payments to employees as beneficiaries are employment income and as a result they are not grossed up and do not carry the normal credit for the tax paid by the trustees. In the absence of the concession tax would be suffered twice, firstly in the hands of the trustees on trust income and again in the hands of the employee/beneficiary where the discretionary payment made out of that trust income is taxed as employment income.
The legislation has been drafted to provide a new statutory entitlement to income tax relief for trustees of employee benefit trusts in these circumstances. It goes a little further than the existing concession as:
Please see further details of the consultation and draft legislation (select the 'current consultations' option).
HMRC is pleased to inform you that a Taxpool Calculator is now available for you and your clients to use. As part of the work to improve the guidance on HMRC Trusts' website a guide covering taxpools was released in December 2008. Since then a calculator has been developed to be used in tandem with the guide to provide practical help with the calculation. HMRC hopes it will help to answer many of your questions on taxpools and make your life a little easier in this area.
Access
the HMRC taxpool guide
Access
the HMRC Taxpool Calculator
The Taxpool Calculator is a web page where figures can be entered to automatically calculate a discretionary trust's taxpool figure. If payments to beneficiaries are entered the Calculator will also show if there is enough in the taxpool to cover them without incurring an additional charge.
In order to keep the Taxpool Calculator as straight forward to use as possible please note that it can not be used for:
If after following the Trust and Estate Tax Return Calculation Guide for these cases, you are still having problems, please contact your Trusts Office.
Download the Trust and Estate Tax Return Calculation Guide
Contacting HMRC for help with tax on trusts
The Taxpool Calculator has been developed using input from HMRC Trusts' technical and customer service staff. Valuable input from customer testing sessions was also used to improve the text and way in which it works. If after using the Calculator you have any comments or suggestions, HMRC Trusts would be delighted to receive them by email to Matthew Roberts.
To free up some space on the HMRC website some of the older editions of this newsletter dating from 1999 to 2006 have been removed. If for any reason you would like a copy of one of these newsletters, please email the customer service team who will be pleased to help.
