IHTM39068 - Correspondence on closed files: Instruments of Variation

Revised legislation came into effect for Instruments of Variation (IoV) executed or made on or after 1st August 2002. The main changes being:-

The Finance Act 2002 did away with the need to deliver an ‘election’ before the IoV had an effect for Inheritance Tax and Capital Gains Tax purposes.
Any IoV executed on or after 1st August 2002 must incorporate a statement of intent if the relevant persons want IHTA84/S142 to apply to the variation.
The IoV does not have to be sent to us if there is no increase in the amount of tax payable

There is now a statutory obligation on the relevant persons to submit to us an IoV if the variation results in additional tax being payable. They have the option of completing a checklist IOV2 and should provide us with a calculation of the additional tax payable.

The relevant persons can now make themselves liable to a penalty of £100 if the IoV that results in additional tax being payable is not sent to us within six months.

Receipt of IoV within the Office:

Any IoV not returned to the sender, by FACET, will, provided that a file exists, be linked with that file and put on the Dividing Table.
If the IoV was dated prior to 1st August 2002 you should check the file to see if there is a will contained within the papers. If no will is held and a copy is required, the case is not ‘one touch’ so it must be referred to another Team to continue the action.
However, if the value of the estate is below IHT threshold before any relief or exemptions, and there is nothing to suggest that the IoV or election is incorrect, then we may accept the IoV without obtaining the will.

Form IOV1 can be used to check the IoV and the election, but the Closed Post Team may decide to dispense with the IoV1 and just tick (in pencil) the relevant parts of the IoV itself. If you find any areas of uncertainty or the IoV or election is likely to be rejected, you will seek the verbal advice of the Primary Compliance Support Team.

If the IoV relates to a taxpaying file, then the Closed Post Team will action any straightforward amendments and raise the necessary informal assessments. However, if the IoV requires the formal valuation of an asset (eg Unquoted shares or land or property becoming chargeable under the IoV) the Closed Post Team will consider it, and if appropriate accept the IoV, and reallocate the file to another team to continue. The Agent will be informed that the IoV has been accepted under IHTA84/S142 and that a further letter regarding the estate will follow shortly.

When you have an NCA File (IHTM03082) where it appears clear that tax will be payable on the estate as a result of the IoV, or the limits on the risk assessment forms NCA2 are breached, then please follow the procedures in the paragraph above.

The Closed Post Team will deal with simple aspects of associated files. It is likely that an IoV that affects another estate will not be ‘one touch’ because we will need to call for the other file. However, the Closed Post team will decide whether or not to obtain the associated file(s) and whether or not to retain them. Should it turn out that one of the connected files is open and being worked elsewhere, then the Closed Post Team caseworker will transfer all the papers to the caseworker dealing with that file.

If the IoV was dated on or after 1st August 2002 the following action will be necessary

IoVs will be dealt with according to the prevailing Office instructions (IHTM35011). If any of these instructions mean that the case is not ‘one touch’ the file should be referred to another Team to continue the action.
If there is either no increase in the tax payable in respect of an estate, or that estate is below the taxable threshold, the caseworker will return the IoV, to the Agent, with a covering letter. The same form of words must be used by all other caseworkers to return similar IoVs that have no effect on the tax payable or the deceased’s estate is below the taxable threshold.
No comment must be made on the effectiveness of the instrument in these cases. The form of words used in your letter will be as follows:

Thank you for your letter of….. and Instrument of Variation (IoV) dated……

The Finance Act 2002 has changed the law relating to IoVs. An IoV executed on or after 1 August 2002 will take effect for Inheritance Tax or Capital Gains Tax purposes as long as it contains a statement to that effect. It is no longer necessary to make and deliver an election.

This means that you only need to send us a copy of the IoV if it alters the amount of Inheritance Tax payable by an estate. As far as I can see, the IoV you sent us does not fall into this category so I am returning it.

We have prepared a checklist to help you make sure that your document will fulfil its purpose. The form is called IoV2 and the notes on the reverse outline the most important points for you to consider. I have enclosed a copy with this letter.

You may order further copies from our Stationery Orderline on 0845 234 1000 or you can complete it on screen by visiting the HMRC website if you have Adobe Acrobat software.

In respect of all the other IoVs that do affect the taxability of a deceased person’s estate please take action as per IHTM35012. Any case that cannot be dealt with quickly and in ‘one touch’ will be referred to another team to continue the action.

If it is noted that any IoV that increases the tax payable on any estate, has not been sent to us within 6 months - then it is liable for a penalty of £100, and the case should be reallocated to the Compliance Group.

It there are any areas of uncertainty and the IoV may be rejected, then please seek the verbal advice of the Primary Compliance Support Team. Depending on their advice, the file should be either dealt with or referred to another Team for their continued action.

If the adjustments to the estate are simple, then the Closed Post Team will make the necessary amendments, and raise and issue the informal assessment(s).

If the IoV requires that a valuation of a previously unvalued asset is required (e.g. non-quoted shares or land and property becoming chargeable) the Closed Post Team will consider, and if appropriate, accept the IoV. The case will be reallocated to another Team, after sending the Agents a letter, informing them of the reallocation and that a further letter will follow shortly.

The above will also apply in cases where NCAs files, following the alterations, will become taxable, or will exceed the limits on the NCA 2s. The case should also be reallocated to another Team.

If the IoV is sent into the Office it should be accompanied by a calculation of the revised/additional tax payable. Whilst this is a statutory duty of the taxpayers, if they fail to send this calculation with an otherwise satisfactory IoV, you should continue with the calculation yourself, but point out to the taxpayer their obligation to do this in any future cases.

In the case where there are a number of associated files the caseworker on the Closed Post Team must obtain all these associated files. If it then turns out that one of these files is open, and being worked elsewhere, the Closed Post Team worker should transfer all the papers to the caseworker dealing with that file.

The Closed Post Team will deal with any simple aspects of associated files. It is likely that any IoV that affects another estate will not be ‘one touch’ because of the need to call for the other file. The Closed Post team will decide whether or not to call for the associated files, and whether or not to retain them.

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