IHT (Inheritance Tax) clearance service for business owners
This guidance is for the use of the business owners who make clearance applications in relation to Inheritance Tax business property relief (IHT-BPR).
Guidance for the use of business customers who wish to apply for a non-statutory clearance can be found on the HMRC website. The current service for other non-business customers continues. Non-business customers should continue to refer to the existing guidance at Code of Practice 10 or VAT Notice 700-6 VAT rulings. (Please note that as a result of the extension of clearances for business customers COP10 and VAT Notice 700/6 are being revised. Further announcements will be available on the ‘What’s new’ section of the HMRC website in due course.)
Contents
• Mission Statement
• Applications for clearances
• When and where to apply for a non-statutory clearance
• Information you need to provide with your application
• How and when HMRC will respond
• When you can rely on a clearance
• Annex A. Checklist for non-statutory clearance applications
• Annex B. Other help and advice available from HMRC
Clearances: Mission Statement
In developing the new Clearance Service we wanted to provide a facility that was as useful as possible for UK businesses as a whole. To do this within our resources, we have focused our efforts on where the benefit is greatest. There are a wide range of potential applications, from issues that are clearly new to those which are almost without doubt. HM Revenue and Customs (HMRC) wants therefore to work in partnership with businesses and their representatives to ensure that as far as possible those issues brought forward for clearance are the ones that have the greatest impact on the business concerned. Developing a common understanding on this will be an ongoing process between HMRC and the users of the service.
The purpose of the new Clearance Service is:
- to provide certainty for businesses operating in the UK, as a useful practical service at a level whereby speed of response from HMRC can be reasonably assured
We will therefore aim to provide clearances:
- within 28 days as the norm
- on areas of material uncertainty arising within four Finance Acts of the introduction of any new legislation
- on legislation older than last four Finance Acts where there is material uncertainty around the tax outcome of a real issue of commercial significance to the business itself, determined by reference to the scale of the business and the impact of the issue upon it
HMRC and users of the Clearances Service will:
- recognise the need for proportionality from all sides so that applications are relevant, focused and within scope, thus avoiding overload of the service to the detriment of all concerned
Applications for clearances
This guidance sets out what you need to do to make an IHT-BPR clearance application,
and what information you need to provide. It includes information for business
owners in relation to IHT-BPR that was previously set out in Code
of Practice 10.
Guidance on non-statutory clearances for business
customers can be found on the HMRC website. Customers who would like advice
on other personal tax issues should continue to refer to Code
of Practice 10.
Non-statutory clearances
A non-statutory clearance is written confirmation of our view of the application of inheritance tax law and the business property relief provisions, in relation to the tax position following a specific business transaction or event, that you can rely on in most circumstances, as our view of the tax consequences of this transaction.
We will provide clearances in relation to inheritance tax business property relief, regardless of the age of the legislation, where you have demonstrated that:
- there is material uncertainty over the application of the law
- that the issue is commercially significant to the business itself
We will aim to send you our view within 28 calendar days, though in complex cases this may take longer.
We will provide non-statutory clearances both:
- pre-transaction where evidence is supplied that the transaction is genuinely contemplated
- post-transaction
We will also provide our view of the tax consequences of a transfer of value that involves a change of ownership of a business (succession) where this transfer, leaving aside the application of business property relief, would result in an immediate inheritance tax charge. Valuations are not included in the clearance service so we will apply some flexibility in borderline taxpaying cases. Evidence must be provided that the transfer is commercially significant and is genuinely contemplated.
Clearances in these succession cases will only remain valid for a limited period of six months. Applicants should recognize that the clearance service cannot be used for general confirmation of the business property relief position in the absence of a commercial transaction.
Clearances do not alter the tax treatment but simply give you HMRC's view of what the correct tax treatment is.
You may wish to apply for clearance in relation to both business tax and inheritance tax. It is helpful if your applications are submitted separately to speed up the handling of these, but, if you prefer to write a joint application letter, you should send copies of the application to both clearance teams and ensure that it is clear from your letter which teams you have sent copies to.
Statutory clearances
There are a few statutes where tax law provides that HMRC will give a clearance
relating to a specific point. These are referred to as 'statutory clearances'
and they are outside the scope of this guidance.
For contact details and a comprehensive list of statutory clearances, please
see the contact
list (PDF 79K). It is helpful if applications for non-statutory clearances
are submitted separately to statutory clearances, to speed up the handling
of your applications.
You may wish to write one clearance application letter to cover both non-statutory
and statutory clearance applications, but you should ensure that copies are
sent to all relevant teams. Where you choose to do this, please ensure it
is clear at the front of your letter which teams copies of your letter have
been sent to.
Statutory approvals
A statutory approval is different from a statutory clearance. Approval can be required in advance for a particular tax treatment to apply to a particular issue that can have wide reaching consequences, and the tax treatment changes according to whether an approval has been given or not. For example, statutory approval for the beneficial tax treatment of certain employee share schemes. For contact details on statutory approvals, please see the contact list (PDF 79K).
When and where to apply for a non-statutory clearance
Customers who can use this service
Clearance applications will be accepted from business owners and their advisers
where there is demonstrable material uncertainty about the inheritance tax
consequences of transaction affecting their business. We do not intend this
to encompass applications which clearly fall within other areas of personal
taxation or routine product endorsements. Business owners may include individuals
or trustees who will become business owners as a consequence of the transaction
that is the subject of the clearance application.
The current service for other non-business customers continues. These customers
should refer to the existing guidance at Code
of Practice 10 or VAT
Notice 700-6.
When you may choose to apply for an IHT-BPR non-statutory clearance
We aim to make the guidance that accompanies our taxes legislation as clear
as possible. If you feel that the guidance does not make clear how the legislation
will apply in a particular situation you can make a non-statutory clearance
application.
Please read our guidance on the legislation before applying for an IHT-BPR
non-statutory clearance, and then read through the checklist in Annex
A . The checklist will help you consider all the information that could
be relevant to your particular application and to arrange the information
so that we can progress your application as quickly as possible. Please attach
the checklist, completed as appropriate, with your application.
To discuss your tax affairs or get tax information, including a wide range
of leaflets that explain different aspects of the tax system, please see the
information contained in the Contact
Us area of our website.
In addition to non-statutory clearances HMRC makes available a wide range
of information and advice to our customers. These are set out at Annex
B. You may also wish to speak to your adviser.
Where to send your IHT-BPR non-statutory clearance
Applications should be sent to:
IHT Technical Team (Clearances)
Ferrers House
Castle Meadow Road
Nottingham
NG2 1BB
Email: IHT Technical team (Clearances)
It will help us if you quote the reference BP102/P1/08E.
We will be able to process your application more efficiently if you send your clearance application by email. Attachments to emails should be no larger than 2 MB. Please don't send self-extracting zip files as our software will block them.
Using email
- HMRC cannot guarantee the security of emails you send to us or we send to you over the internet. Any information you send us by email is at your own risk.
- It is important that you have assessed the risks of using email to send information or to receive it from us.
- We will not generally be able to reply by e-mail. If you would like us to reply by email, please tell us so and confirm that you understand and accept the risks involved in using email.
- Information about market/price sensitive matters or well known individuals should not be sent by email. Courier or post should be used for such sensitive information.
- If you have any doubt about the authenticity of an email you receive which claims to come from the clearances team, please call us to check.
Please attach the checklist in Annex A, completed as appropriate,
along with the information and any supporting documents that explain your
clearance application. If you do not email your application to us, please
print the checklist as a cover page and send all the documents to your designated
contact above.
We recognise that many clearance applications contain commercially sensitive
information and we will handle all information included in clearance applications
securely and in accordance with our legal obligations. Whether you send us
information electronically or on paper we will keep it secure, and not disclose
it to anyone unless they are authorised to see it.
For an application that you consider particularly sensitive you may wish to
notify us in advance, so that we can agree about how best to submit your application
to us. Please e-mail IHT Technical
Team (Clearances) with a contact name and telephone number and we will
contact you.
Information you need to provide with your application
For a clearance to be binding on us you must provide us, at the time the
clearance is sought, with the full facts and context of the transaction, and
set out the legislative uncertainty in question. The courts have said that
the customer must 'put all of their cards face upwards on the table' (See
Note 1). You are responsible for ensuring the information is correct,
accurate and complete.
The information that you provide will depend on the circumstances of the clearance
application. You need to decide what information is relevant to your application.
Please include a heading to your clearance application that includes the name
and address of the business owner and ensure that your application is clearly
headed as a non-statutory business clearance application.
The checklist at Annex A and the guidance in this
section will help you decide what to provide so that we have the relevant
information we need to process your application quickly. The guidance sets
out guidelines as to the information to provide. We do not expect that all
the information we list will be available or relevant for every clearance
application. It minimizes the burden for you and for us if you provide summaries
of the relevant information, rather than a large volume of supporting documents.
Please supplement this with more detailed explanations, drawing attention
to the relevant paragraphs in any supporting documents you provide.
Information about the applicant
Please set out this information at the start of your clearance application.We will need to understand who is carrying on the business, including:
- the name and address of the individual or trustee business owner
- if different, the name and address of the business
- the relevant business identification number in full, eg Unique Taxpayer Reference and Company Registration Number
- details of the interest held by the individual or trustee in the business
- contact details
- if you are an adviser acting on a client's behalf, your contact details and statement on whose behalf you are acting - normally we require the full authority for you to act from your client
Information about the transaction(s)
It helps us to handle the application efficiently if you set out the nature of your clearance request at the start – for example, in the heading or first paragraph. Please follow this with:
- details of when the transaction occurred and the parties involved, and any other details of the transaction, eg what assets were acquired or disposed of
- the proposed date if the transaction has not yet happened, and supporting information, such as a draft contract where it is available, so that we have an understanding of the timeframes under which you are working and can verify that the transaction is genuinely contemplated
- any details of the transaction that are contingent, for instance, on future events or the consent of other parties
Please note that if the request relates to one specific part of a series of connected transactions we expect you to provide a summary of the series of transactions as part of the facts about your transaction.
Information about the commercial background
Please explain the context of the transaction and the reasons you are undertaking it, providing details of any connected transactions as appropriate. Please also:
- explain the significance to the business owner of the tax result in achieving the desired outcome, including the consequences of any alternative legal interpretations you have considered
- where you have considered different forms of the transaction explain why you chose the proposed form of transaction over alternatives that could achieve the same commercial result
- where your uncertainty arises from the interpretation of legislation older than the last four Finance Acts, you should also provide details of the commercial significance to the business of the transaction that leads you to make the clearance application
- provide accounts for the business for a representative period up to the date of the transaction including detailed profit and loss accounts together with any other relevant financial information.
Information about legal points
Please set out your view of the tax consequences of the particular transaction, with a summarised explanation of your reasoning, and the full details of the question and issue on which you want a response. Please:
- summarise the specific legislation at issue, any case law considered and guidance consulted that are relevant to the point of doubt on which you have made your clearance application
- demonstrate why you believe there is uncertainty about the way the legislation applies
- explain different ways it might apply that you have considered, paying particular attention to those aspects of the transaction that are critical to the legal analysis
- state any previous advice you have or, where you are an adviser, your client has, received from HMRC (or its predecessor departments) that is relevant to your clearance application, quoting any HMRC (or predecessor) references where known and explaining why this advice does not go far enough to resolve your uncertainty
- consider disclosing any advice, or parts of it, you have received, for example from your professional advisers or tax counsel. You are not obliged to provide this but by doing so we may better understand your request for advice
Note 1: The quote originates from R v IRC (ex parte MFK Underwriting Agencies Ltd) [1989] STC 873.
Information about the disclosure of a tax avoidance scheme that covers all or part of the transaction
When submitting a Non-Statutory Business Clearance application for a transaction for which there is also the disclosure of an avoidance scheme which covers all or part of the transaction, it is important that explicit mention is made of any related disclosures, preferably by including a copy of the disclosure or, where available, by reporting the allocated DOTAS scheme reference number.
How and when we will respond
If your application for a clearance is accepted
We will acknowledge your application on receipt and send our full response within 28 calendar days as the norm. Our response will either:
- accept your interpretation of the legislation
- reject your interpretation of the legislation
- request further information that we need before we can give you an answer
Where we reject your interpretation we will set out reasons for this. Once
we have provided our response, you are entitled to act on the basis of our
view, or on the basis of your own view of the appropriate tax treatment.
Very occasionally we may not be able to send our full response within 28 calendar
days. This may be, for example, because the application is very complex and
requires advice from a number of specialists within HMRC. Where this is the
case we will tell you, and work with you to provide a response as soon as
we can.
Sometimes we may need to ask you to provide more information before we can
send you a full reply. If we need to ask you for more information, we will
suspend the handling time for your application until you are able to provide
us with the information we have requested. We may wish to contact you by telephone
for clarification, and it helps us if you can provide a regular contact point
during the period of your application.
If your application for a clearance is not accepted
We will, as soon as possible after receipt of your application, either:
- respond by referring you to the relevant guidance
- return your request setting out clearly why we are not responding to it
Circumstances when we will not accept your clearance application
We will not accept your application:
- where you ask us to give, or comment on, tax planning advice - in particular, we do not 'approve' tax planning arrangements
- where you submit an application that is a minor variation of your previous one for the same client on the same transaction (minor variation does not include where you notify us of a change in the facts of the transaction that is the subject of an ongoing pre-transaction clearance application)
- where we take the view that the arrangements are primarily to gain a tax advantage rather than primarily commercially motivated. We will consider each case on its own merits and in accordance with our published risk guidance
- in response to applications where there is not, in fact, any uncertainty - where the point is covered by our published guidance we will instead refer you to the specific part of relevant publications and indicate its relevance to the issues raised in your clearance application
- where we have already opened an enquiry into the transaction that is the subject of your clearance application; or where an enquiry into an Inheritance Tax return has already been opened
- on issues that do not involve the interpretation of tax law or its application to particular circumstances, for instance asset valuations
- in relation to the tax consequences of executing trust deeds or settlements, and whether Chapter 5 Part 5 Income Tax (Trading and Other Income) Act (ITTOIA) applies
- in cases where the disposition of property under a will is conditional on the availability of business property relief
Where you are not happy about the way we handled your application
We aim to send clear responses to the questions raised in your clearance
application. We recognise that sometimes you may not agree with the response
you receive from us, or you may not be happy with the service we have provided.
If you believe that we have failed to take account of some of the material
facts set out in your application please contact the officer who dealt with
your case (the details will be on the correspondence we have sent you) and
ask that they look at your application again. If you remain unhappy you can
ask to be referred to the complaints manager.
If you are unhappy with the way we have handled your affairs, for example because of delays or mistakes, please tell the person or office you have been dealing with. If they are unable to sort things out, ask for your case to be referred to the complaints manager.
Interest and penalties where you asked us for a clearance
If you have applied for a non-statutory clearance, but have not received it by the time that an IHT account is due to be submitted, then the account must still be sent in before the time limit. If that happens you should complete the account according to your own view of the correct tax treatment of the particular transaction. The normal interest and penalty rules will apply if an account is incorrect, whether or not the transactions have been the subject of a clearance.
If you disagree with the clearance that we gave you and complete the account in accordance with your own view of the proper tax treatment, then it may turn out that you have not declared nor paid enough tax at the right time. Regardless of whether you had applied for a post transaction clearance or whether we had given a clearance by the due date, any unpaid or undeclared tax carries interest in the normal way. Similarly, any overpaid tax carries repayment interest from the date it was paid wherever this is usually the case.
Appeals against clearances
There is no general right of appeal against advice or clearances given by HM Revenue & Customs except where rights to appeal are set out in statute. For example, there is a right to appeal to the independent tax tribunal under Section 83 of the VAT Act 1994 about the amount of VAT chargeable on a specific supply of goods or services. An appeal under this section can only be made if the supply has taken place.
If you disagree with any appealable decision you have been given you should write to us and tell us within 30 days. You can ask for the appealable decision you have been given to be reviewed or can appeal direct to the independent tax tribunal. More information on your rights to review and appeal are set out in the HMRC factsheet HMRC1: HM Revenue & Customs decisions – what to do if you disagree (PDF 73K)
When you can rely on a clearance
General principles
A clearance applies:
- to the applicant (even where the application has been made by the applicant's adviser, the adviser cannot apply that clearance to other similar cases)
- to the particular transaction that was the subject of the clearance application
We aim to provide clearances that will give certainty to business owners
as to the IHT-BPR consequences of their transactions. Our starting point is
therefore that you should be able to rely on any clearance we provide. However
for a clearance to be considered binding on HMRC, you must set out all the
relevant facts and draw attention to all the issues in your application. We
expect businesses to interpret this relatively broadly, for example, by providing
information on related transactions where relevant.
In most cases, inheritance tax does not arise as a consequence of the commercial
transaction itself but of a later event if that event is a transfer of value.
In these circumstances, our view of the application of inheritance tax law
to the availability of business property relief for a business, an interest
in a business, certain shares and securities or certain business assets applies
to the facts and circumstances existing at the date of the commercial transaction.
HMRC will not be bound by a clearance we have given if there is a change in
circumstances between the date of the commercial transaction and a later transfer
of value. A change of circumstances includes a change in the nature of the
business or the structure of the business, a change in the nature of the interest
held by the person to whom the application applies or a change in the legislation
relating to business property relief.
In cases where the commercial transaction is a change in the business ownership, any clearance given will be valid only for a period of six months from the date of the clearance letter.
Under our existing powers of 'collection and management' (See Note 2), the principles of administrative law apply and the Courts will ultimately determine if we are bound by a clearance we have given. The underlying principle is that HMRC has a duty to collect the correct amount of tax as required by statute. In the vast majority of cases a clearance we give will be correct in law and therefore binding on HMRC. However there are some circumstances in which our primary duty to collect tax according to the statute may mean that we can no longer be bound by a clearance we have given. For example this may occur where:
- For a pre-transaction clearance, the nature of the transaction changes in a way that has a material impact on the transaction as a whole.
- You provided incorrect or incomplete information when you made the clearance application.
- A Court or Tribunal judgment changes the prevailing interpretation of the law on which the clearance was based and liability to tax has not been finalised - for example, where a return has not yet been submitted or if you have submitted a return where the opportunity to amend that return remains. A clearance will be based on the prevailing understanding of the law at the time it is given. Where the courts change the prevailing interpretation of the law, subject to the principle of legitimate expectation, we are required to collect the correct amount of tax as required by the new interpretation of the law.
- The statutory law relevant to the transaction for which the clearance was given changes. If this change is retrospective we will not be bound by any pre- or post-transaction clearance we have previously given. This situation occurs very infrequently. If the new statute is enacted pre-transaction and is prospective, any previously given clearance relating to the transaction will not be considered to be binding. HMRC has a duty to collect the correct amount of tax as required by statute at the time the transaction takes place. It remains your responsibility to take account of changes in the law.
Note 2: Section 5 of the Commissioners for Revenue and Customs Act 2005.
Where HMRC makes an incorrect statement
There may be a small number of cases where we provide a clearance that is incorrect in law. Where this happens, we will be bound by such advice provided that it is clear, unequivocal and explicit and you can demonstrate that:
- you reasonably relied upon the advice
- where appropriate you made full disclosure of all the relevant facts
- the application of the statute would result in your financial detriment
Where this is the case, to apply the statute may be so unfair that it could
amount to an abuse of power. But, where we have given an incorrect clearance,
our primary duty will always remain to collect the correct amount of tax as
required by the law and therefore there will be some circumstances when we
would not be bound by the advice we have given.
Where we provide you with an erroneous clearance that is binding on us and
subsequently notify you that it is incorrect, the established legal position
(See note 3) is that you will only be required to start accounting for
tax on the correct basis from the date of notification. For Inheritance Tax,
this means that any transfer of value falling after an erroneous clearance
has been corrected must be accounted for on the correct basis.
Note 3: See for example F & I Financial
Services Ltd [2001] STC 939 and Al Fayed and others v Advocate General for
Scotland [2002] STC 910.
Annex A - checklist for non-statutory clearance applications
Please use the checklist for non-statutory clearance
applications (PDF 21K) when deciding which document to attach to your
email application, or print and include as a cover sheet where you do not
send it electronically.
Check that you have included information that is relevant and available for
your clearance application and indicate with a tick items that are included.
It helps us if you follow the order set out below in your clearance application
letter and follow the same order in grouping any supporting documents.
Annex B - other help and advice available from HMRC
In addition to non-statutory clearances HMRC makes available a wide range
of information and advice to our customers.
To discuss your tax affairs or get tax information, including a wide range
of leaflets that explain different aspects of the tax system, please see the
information contained in the Contact Us area of this website.
For general advice on VAT, Excise and Customs, please ring our National Advice
Service (NAS) on Tel 0845 010 9000.
For general queries on IR35 intermediaries legislation, please contact Tel
0845 303 3535.
For general advice on other matters, please ring the Client Relationship Manager
(CRM) or Customer Manager (CM) that handles your tax affairs. If you do not
have an established contact within HMRC, then please visit the Contact
Us area for the number of an appropriate helpline. You will find it helpful
if you prepare for the call by having to hand a clear explanation of your
question and relevant details.
