IHTM45023 - Reduced rate for charities: treatment of reduced rate on COMPASS: temporary workaround and procedures for caseworkers
To begin with all cases where the reduced rate applies will be worked in Compliance, so we can monitor whether the rate has been applied correctly.
Until such time as COMPASS is updated, you should use the ‘reliefs against tax’ box (where double taxation relief is normally entered) to reflect the reduction in the rate of tax, in cases where this applies. The process is as follows
Estates where the reduced rate applies will be datacaptured according to IHTM45021, but no adjustment will have been made to reflect the relief. To set up the initial position correctly, you will need to establish which of the components are entitled to the reduced rate. You may need to use the charitable legacy calculator [link] to arrive at the chargeable value for the component qualifying for the reduced rate. If the taxpayer or agent has applied the reduced rate incorrectly you should take up these errors with them in the normal way.
For each component where the reduced rate applies, you should work out 10% of the tax due on each calculation and deduct this amount in ‘relief against tax’ box. You can then raise, issue and pay the calculations. There are examples of the calculations at IHTM45024. You should include a note on the calculation to explain that the ‘relief’ reflects the reduced rate of tax.
In the rare case that both QSR and the reduced rate apply, you will need to adjust the allocation of the QSR between the components of the estate as shown at (IHTM45050). The effect will be that the component(s) entitled to the reduced rate will have their QSR reduced, whereas those paying tax at the full rate will benefit from slightly more relief. These adjustments should be included on COMPASS in the ‘Adjustments’ box and not mixed in with the relief given for the reduced rate.
Amendments to estates and IoVs
Whilst some cases will qualify for the reduced rate from the outset, others may qualify at a later stage is a result of changes to the estate. The two most common situations where this may happen are where:
- an Instrument of Variation redirects part of the estate or additional assets to a qualifying charity
- changes to the values in the estate mean that one or more components of the estate now meet the 10% test.
An example showing how changes to the estate might affect whether the reduced rate applies or not is shown at IHTM45024
Caseworkers will need to watch out for changes that might mean a case that previously did not qualify for the reduced rate now does. Estates with components that qualify for the reduced rate may also need to be re-examined if the values in the estate change, to make sure they still qualify.
Caseworkers in Service should check any cases where changes mean the estate might now qualify for the reduced rate using the online calculator [link]. Cases which now qualify as a result of amendments or an IoV should be sent to Compliance to be dealt with. Any case in which there is doubt should be sent to Service Technical Support (STS) to consider whether or not the reduced rate applies. STS will send any cases where the reduced rate applies to Compliance and return any where it does not to be worked in Service