Reclaim IHT over 4 years after death

[JPDavey]

Hi,

I’m one of many beneficiaries to an estate of final value around £1.5 million.
The estate was originally valued at around £2.4 million and part of the IHT was paid.
The property was eventually sold 4.5 years after death and the true estate final value is now 1.5M.
The final £400K portion of IHT (based on the original higher valuation) was paid to HMRC shortly after the property was sold.

Will HMRC allow a refund of the excess IHT paid ? It’s 4.5 years after death. There is a cut off at 4 years Ithink.
Should the Executor (a solicitor) have paid the last instalment knowing the lower true value of the estate ?
Should the Executor have negotiated with HMRC before handing over the £400K.
Any answers or advice would be greatly appreciated.

Many thanks,

John

[AGoodman]

All that I can think of from a tax perspective is that you might try a corrective account (form C4) - but this would only have a chance if there was something fundamentally wrong with the original account/valuation rather than the property simply selling for less than expected (which would be out of time).

e.g. the estate owned a 40 year lease rather than the freehold or you discovered a ransom strip blocking access to the property.

Absent that, the estate is bound to the original value submitted.

Given this seems to have been a sale for half the valuation (or possibly less), there is also potential for negligence claims against the valuer and/or personal representatives if they were indeed negligent. That will depend on the circumstances and is way outside the scope of this forum.

[JPDavey]

Thank you for your useful reply AGoodman.

Apologies, but I have my figures wrong. The original estate valuation was 1.9 million not 2.4 million (I calculated the original estate valuation working back from the IHT amount paid, but didn’t realise the IHT paid included substantial amount of interest).
So the initial estate valuation was £400K higher than the realised value.

This makes the IHT ‘overpayment’ less, but still around £160,000, which is going to be difficult to recover from HMRC now, nearly 5 years after death.
Would it have been prudent for the executor to hold onto the last instalment (£400K) and negotiate with HMRC before paying ? That’s what I would have tried.
The Executor blames COVID for taking 5 years to bring things to this stage. Does anyone think HMRC will bend the 4 year rule because of Covid ?

[pawncob]

You can make the claim up to seven years after death, but HMRC rigidly enforce the four year time limit.

[Lambs]

Dear All,

I should preface by saying that I do not consider myself particularly conversant with the nuances of IHT.

However, I see that IHTA 1984 s 241 says:

"241Overpayments.
(1)If it is proved to the satisfaction of the Board that too much tax has been paid on the value transferred by a chargeable transfer or on so much of that value as is attributable to any property, the Board shall repay the excess unless the claim for repayment was made more than [(F1) 4 years] after the date on which the payment or last payment of the tax was made.

(2)References in this section to tax include references to interest on tax."

While we are clearly past 4 years since date of death, it seems to me that we may NOT yet be more than 4 years since date of last PAYMENT. Hence there may yet be a window open to lodge a claim for relief?

This appears to be backed up by HMRC's technical guidance at IHTM31601.

This feels like something an IHT specialist might well know quite readily. I cannot remember if P or AG fall into that category (in which case I'd defer to their greater wisdom) or if, like me, they are "playing away".

Regards all,

Lambs

[JPDavey]

Dear Lambs,

Thank you so much for your reply and for finding and supplying the references.
By my inexperienced/amateur reading there does seem to be hope for a refund if the refund application is within 4 years of the last payment (our last payment of £400K was 6months ago).

Does anyone else have an opinion of how IHTA 1984 s 241 and HMRC's technical guidance at IHTM31601 would apply to my situation ?

Many thanks,

John

[Lambs]

J,

You're welcome, so far as it goes - but I repeat that I am not conversant with the day-to-day compliance of IHT. If AG and/or P have more to add, then so much the better. If not, I can recommend someone who I am confident specialises in IHT although it will I expect have to be on a paid basis, for proper advice.

With regards in the interim,

Lambs

[AGoodman]

It's an unusual situation and I've never seen anything on the interaction between repayments under 241 (by a corrective) and a s.191 relief claim.

But I still think it is worth looking at a corrective and potentially seeking a repayment if there was a fundamental mistake with the initial valuation. There's nothing in s.241 that prevents you making such a claim when it relates to land. You just have to persuade HMRC that the initial valuation was wrong - in the circumstances, that would probably be by identifying a fundamental mistake. If you just point at the sale price, they will refer you to the time limit on s.191 claims.

Somebody being paid for their time should look at it!

A lot turns on the precise circumstances. You've focused on the value of the estate but not mentioned the value of the property itself so we don't know by what percentage it was overvalued or when any mistake was identified. And we have no idea what caused the overvalue in the first place. That is the most important point. If it was just the vagaries of the market then you are probably out of luck.