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Busy Practitioner by Mark McLaughlin ATII TEP

Inheritance Tax is becoming an issue for an increasing number of taxpayers, particularly in view of spiralling property values. Some recent changes affecting IHT compliance are considered by Mark McLaughlin ATII ATT TEPThe continuing trend of upwardly spiraling property values in particular means that inheritance tax (IHT) is becoming an increasingly relevant issue for clients and their advisers, and this is notwithstanding the increase in the nil rate band to £255,000 for 2003/04. Accountants and tax practitioners should therefore be mindful of recent changes affecting IHT compliance.

Form IHT 100

A new Inland Revenue Account for Inheritance Tax (form IHT 100) was recently introduced. This return deals with a number of chargeable events (e.g. lifetime transfers made by individuals to discretionary trusts), but not death.

The new IHT 100 form follows the format of Self Assessment returns, with an eight page lead return and supplementary pages. There is also a separate ‘event form’ for each category of chargeable event.

There are certain exceptions from the requirement to deliver an IHT 100 account, such as for gifts or chargeable transfers of value by an individual if:

• total chargeable transfers in the tax year do not exceed £10,000; and

• the cumulative total in the ten years preceding the transfer does not exceed £40,000 (The Inheritance Tax (Delivery of Accounts) (Excepted Transfers and Excepted Terminations) Regulations, SI 2002 No 1731).

Simpler reporting

Simplified reporting rules apply to smaller estates (‘excepted estates’) on death. If an estate is excepted it is not necessary for the personal representatives to deliver an account of the estate in order to obtain a grant of representation (different rules apply in Scotland, where an inventory is required with applications for confirmation). There is normally no requirement to deliver a full account of the estate on form IHT 200. A ‘Short Form for Personal Applicants’ (form IHT 205) can be completed instead.

With effect from 1 August 2003, the simplified reporting rules apply to qualifying estates where the gross value does not exceed £240,000. This threshold is increased from £220,000, in respect of deaths occurring from 6 April 2003 (The Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) Regulations SI 2003 No 1658).

Direct Payment Scheme

A process allowing personal representatives to draw on money held in the deceased’s bank or building society accounts in order to pay the IHT due on delivery of an Inland Revenue Account (form IHT 200) was introduced on 31 March 2003. The scheme only applies to credit balances on accounts in the deceased’s sole name, and broadly involves the following process:

• Applying for an Inland Revenue Capital Taxes reference number;

• Completing an ‘Application to transfer funds to pay inheritance tax’ (form D20) in respect of each account from which a transfer is to be made. The bank or building society should be contacted beforehand to ensure that they participate in the direct payment scheme. The personal representatives who will be applying for a grant of representation (or a grant of confirmation in Scotland) should sign the form, and also identify themselves as such to the relevant bank or building society;

• When the personal representatives wish to apply for grant, form D20 should be sent to the bank or building society, and the IHT 200 form (plus supplementary pages and any supporting documents) submitted to Capital Taxes;

When Capital Taxes receive notification of the payment, it will be attributed to the IHT 200 form and, if everything is in order, the estate ‘Probate summary’ (form D18) will be stamped and returned, so that probate can be obtained.

Probate and IHT Helpline

A Probate and IHT Helpline (Telephone 0845 3020900) was set up by the Government in April 2003 to provide a single information point and assistance for those dealing with probate and IHT issues. Additional information and forms are also available from the Inland Revenue website (www.inlandrevenue.co.uk/cto/) and also the Court Service whose website address is www.courtservice.gov.uk.


Mark McLaughlin ATII ATT TEP is a tax consultant, lecturer, author of ‘Tax Essentials – Direct Taxes’ and contributing editor of ‘Tax Compliance Manual’ (both published by Tolley). He can be contacted by e-mail at mark@taxationweb.co.uk