Paragraphs 21 and 22 give the chargeable person the option of electing that any relevant property that would otherwise be subject to the charge be treated as subject to a reservation for the purposes of Part 5 of the Finance Act 1986. If an election is made the property will not be subject to the charge under this Schedule but will instead be subject to a charge to inheritance tax on their death. The charge to inheritance tax will be incurred unless the occupation or use (of property otherwise within this Schedule) ceases permanently (and is not recommenced) at least 7 years before their death or (in the case of land or chattels) the chargeable person pays full consideration for use of the relevant property. If the person is already paying full consideration for use of the land or chattels before making an election and then elects we accept that there is no deemed PET at that point. However, if the person ceases to pay full consideration in the 7 years prior to death and is still in occupation of the property the effect of the election is that they will be subject to an inheritance tax charge on their death.
In the case of a couple who are married or in a civil partnership who jointly owned a property and who are both caught by the provisions of this Schedule, if they both wish to have it treated as property subject to a reservation, they must both make an election. An election by one cannot affect the other. Hence one of them may instead choose to pay the income tax charge in respect of their share, whilst the other may elect for a GWR under paragraph 21.
This paragraph applies where the chargeable person is potentially chargeable for any year of assessment by reference to their enjoyment of any land or chattels for the first time. Enjoyment refers to occupation of the land and possession or use of the chattel in question.
The chargeable person may elect that the relevant property, or property substituted for it, shall not be subject to the charge but so long as they continue to enjoy it, the chargeable proportion of the property will be treated as property subject to a reservation and sections 102(3) and (4) Finance Act 1986 will apply.
The 'chargeable proportion' means
DV |
V |
where DV and V are the values detailed in section 2.1 of these guidance notes. The valuation dates to be used in these circumstances are
When calculating DV the transactions to be taken into account should include
transactions after the time when the election takes effect as well as
before that time.
This paragraph applies where the chargeable person is potentially chargeable for any year of assessment by reference to any relevant intangible property for the first time.
The chargeable person may elect that the relevant property, or property which it represents or is derived from, shall not be subject to the charge but, provided certain conditions are met, it will be treated as property subject to a reservation and sections 102(3) and (4) Finance Act 1986 will apply. The conditions are
Whether it relates to land, chattels or intangible property the election may be withdrawn or amended during the life of the chargeable person at any time on or before the relevant filing date (see 3.3). If the election is withdrawn the property will be subject to the charge from the tax year 2005-06 or the year on which they would have first become chargeable under this Schedule.
The election must be made on form IHT 500. Guidance on how to complete the form, together with the form itself, can be found elsewhere on this website.
The election must be made on or before 'the relevant filing date', or "such later date as an officer of Revenue and Customs may, in a particular case, allow."
If the chargeable person was subject to income tax from the initial year of the charge, the relevant filing date is 31 January 2007. If they become subject to the charge in a later year of assessment, the relevant filing date is 31 January in the year of assessment immediately following, e.g. if they first became subject to the charge during the year 2007-08, the relevant filing date will be 31 January 2009.
The election takes effect for inheritance tax purposes from the date on which the chargeable person would have first become chargeable under this Schedule but for the election. The earliest year it can take effect is the year beginning 6 April 2005.
In general, we will accept a late election if the chargeable person can show that an event beyond their control prevented them from sending us the election by the relevant filing date. If the chargeable person was able to manage the rest of their private or business affairs during the period in question, we are unlikely to accept that they were genuinely prevented from delivering the election on time.
Examples of situations that we may consider as an event beyond the chargeable person's control include those where:
If an illness involves a lengthy stay in hospital or convalescence the chargeable person is expected to have made arrangements for completing and sending in the election on time. But there may be circumstances where this is not possible and we may accept these as a valid reason.
The serious illness of a close relative or partner will be regarded as a valid reason for a delay in electing only if
- the situation took up a great deal of the chargeable person's time and attention during the period from the relevant filing date to the date the completed election was sent in, and
- steps had already been taken to have the election ready on time;
There may be cases where, given the overall circumstances, we will accept a late election even where the chargeable person cannot show that the reasons for the late election were beyond their control. Essentially, this will be where the chargeable person can show that they were unaware - and could not reasonably have been aware - that they were liable to an income tax charge under this Schedule, and elected within a reasonable time of becoming so aware.
It is likely that such cases will involve a number of relevant features. The chargeable person or their agent should send with their late election a full explanation of the factors that they wish to be taken into account, which may cover (but need not be limited to):
We will only accept a late election where the chargeable person can show that their failure to elect by the relevant filing date is not a result of:
Where HMRC makes changes to its guidance - for example, because we consider that a charge to income tax under Schedule 15 arises from particular transactions that we did not previously regard as giving rise to a charge - we will accept late elections in those cases where the taxpayer can show that they elected as soon as practicable after becoming aware of our revised view.
Where a change in the law results in a charge arising from particular transactions that did not previously give rise to a charge, we will accept late elections in those cases where the taxpayer can show that they elected as soon as practicable after becoming aware of the change.
When we receive a late election, we will consider if sufficient information has been provided to explain why the chargeable person did not elect on time. If it has not, we will write to the chargeable person or their agent for more details.
In all cases, we will also contact the chargeable person's income tax office and let them know we have received a late election. Whether we are then able to make a decision on the election may depend on whether or not they have opened an enquiry into the chargeable person's Self Assessment affairs, or whether they intend to do so as a result of the late election (or a combination of the election and other factors).
If there is an ongoing enquiry, or it is intended to open one, then we may not make a decision on a late election until the enquiry is concluded, in case information comes to light during the enquiry that is material to that decision. We may, though, make a decision at an earlier time if the chargeable person's income tax office is satisfied that no further information will be forthcoming that could affect it.
There is no right of appeal against the refusal to accept a late election, although a taxpayer may seek to challenge such a refusal by way of judicial review. If we do refuse to accept a late election, we will explain our reasons for doing so.
If the chargeable person is unhappy about how we have dealt with their case, they may write to the Customer Service & Complaints Manager at:
HMRC Inheritance Tax
Ferrers House
PO Box 38
Castle Meadow Road
Nottingham
NG2 1BB.
If, having taken that step, the chargeable person remains unhappy, they can contact the Adjudicator's Office with any complaints at:
The Adjudicator's Office
Haymarket House
28 Haymarket
London
SW1Y 4SP.
The chargeable person can at any time ask their MP to refer their complaint
to the Parliamentary Ombudsman. The Ombudsman will normally expect the
complaint to have already been considered by HMRC and by the Adjudicator.
