IHTM30535 - Negotiating a settlement: Compass procedures

There may be instances where you reach a negotiated settlement, but the value of specific assets, liabilities, exemptions or reliefs were unable to be agreed. Compass was not designed to handle these types of settlements as it can only accept definite values for specific assets or liabilities. You should not therefore raise any assessments - to bring this amount to account - on Compass.

Reaching the negotiated settlement is quite different from reaching a compromise agreement on a value to be included in the estate for any assets or liabilities. As the value will have been agreed, it should be included on Compass and calculation(s) issued in the normal way.

Where the settlement figure has been agreed and payment made, payments will inform you of the receipt of an unmatched deposit(s). You should then complete a CAS Comp form. The form will need to be countersigned by an Authorising Officer. The Authorising Officer should ensure that the correct procedures are being followed and that yield (see below) is being recorded accurately on Compass.

The Countersignatory will depend on the value of the negotiated settlement. Where the value of the settlement is

• less than £250,000 tax, the Authorising Officer will be your manager
• between £250,000 and £1million in tax the Authorising Officer will be an Assistant Director;
• any settlement over £1million should be forwarded to the Deputy Director for countersignature.

You will be able to see that the payment has been matched by checking the SAGE record on COMPASS after the Cas Comp form has been sent to Cashiers.

Recording yield on negotiated settlements

The yield should be recorded on Compass using the following method:-

If your negotiated settlement does not involve a specific item already recorded then you will need to add an asset type on Compass. The most appropriate box will usually be the 'Other' property description e.g. 'Other personal property' or 'Other land'. Once you have added the appropriate item on Compass, you must then delete it. This will ensure the general description appears in the drop down menu in the new adjustments screen on ERS.

You will then need to open the ERS screens on Compass. Click on "Next" and the yield report screen should appear. You must then click on the "Adjustments" button to record the yield. A drop down list will appear for you to choose the asset type and you will then need to record the amount of the adjustment in the appropriate box. Until such time as you close the enquiry record, you can revisit any of the entries in the yield list and change it as necessary.

Examples of how to record on compass yield achieved through negotiated settlements:-

Example 1

The Valuation Office cannot reach agreement with the taxpayer on the value of an item of property, say 'Blackacre' ( IHTM23082). The amount of additional tax involved does not warrant taking the case to the Land Tribunal, but the potential difference in tax is reasonably significant. It is therefore worth discussing the situation with the agent or taxpayer and attempting to reach a negotiated settlement where some of that potential additional tax is paid.

If in the above situation the taxpayer's value was £200,000 and the Valuation Office figure was £215,000, the potential additional tax which might be lost is £6,000/ You reach agreement to settle this issue on the basis that the taxpayer pays an additional £2,000, over and above the tax he will pay on the basis of his value of £200,000, but with the value of the property remaining unagreed for IHT purposes. You should write to the agent or taxpayer to confirm the agreement you have reached and you should note that "Thevalue for 'Blackacre' has neither been agreed for Inheritance tax purposes norascertained for Capital Gains Tax, but it will continue to be shown at the valueoriginally returned of £200,000 in any subsequent tax calculations."

The figure to be included in Compass for the specific item of property remains at £200,000 for all Compass assessing purposes. However you should include the additional yield achieved as an adjustment on ERS. In this particular case, you will need to record an adjustment of £5,000 (The adjustments record the effect of Capital changes, thus £5,000 x 40% = £2,000).

Example 2

You may also find situations where the taxpayer has offered an increased value which is still not agreed. If in the previous example the taxpayer had offered £202,500, a small increase of £2,500, the potential shortfall in value is still £12,500. You decide to try and do a deal to close the gap still further and reach agreement to settle the issue on the basis the taxpayer pays an additional £750, over and above the tax due on his revised offer of £202,500. Again you have done so on the basis the value of the property remains unagreed for IHT purposes.

In these circumstances you would now use the £202,500 figure in Compass to record yield on the value not in dispute and use the ERS adjustments box to record the £2,500 adjustment, plus the £750 payment received as a negotiated settlement. As the £750 is additional tax paid, you would need to record a capital adjustment of £1,875 (40% tax on £1,875 = £750).

In other words, whenever you are in a situation where you have reached a negotiated settlement which does not involve compromising on an actual value for an asset, the capital figure to include for assessing purposes on Compass should always be the best and highest value offered by the taxpayer prior to settlement.