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Matthew Hutton MA, CTA (fellow), AIIT, TEP comments on HMRC practice regarding claims for business or agricultural property relief, and on the disclosure of foreign assets on form IHT 200. 

Exempt Estates with Agricultural or Business Property – HMRC Practice

Context

Where a deduction for, say, agricultural or business relief is made in an estate which is nevertheless not liable to tax because an exemption is available, HMRC will not consider the validity of the deduction of the relief, or the extent to which relief would otherwise be available. This is because with ever tightening resources, HMRC cannot justify the costs of investigation to the taxpayer or the Exchequer where there can be no tax consequences.

HMRC will not consider the issue until IHT is at stake

If an application for clearance is made, HMRC will issue a certificate, but that is no indication that they have considered or accepted any deduction for a relief against the estate.

Should the availability of the relief affect the IHT payable on another estate (for example the subsequent death of a spouse/civil partner), HMRC will consider the deduction for relief at that time and will not be bound by the fact that they have issued clearance in an estate where similar circumstances applied, but tax was not payable for other reasons.

(HMRC IHT Newsletter August 2006 p 3)

Comment

This statement seems perfectly reasonable - and correct. More difficult is the not uncommon case where the PRs have to appropriate to a nil-rate band discretionary trust assets attracting APR or BPR, whether at 100% or 50% and especially in relation to the farmhouse and having to ascertain the agricultural value. HMRC traditionally will not assist in such cases on the basis that these are not tax issues but issues of trust law and practice. On the other hand, presumably wherever now a farmhouse is in point, they will want to examine the case following Antrobus No 2.

Foreign Assets

Context

When completing the IHT 200, form D15 is used to give details of any foreign assets that form part of the estate. For a transfer where the IHT 100 is appropriate, form D39 is used to give details of foreign assets. The guidance notes that accompany these forms explain the steps HMRC expect people to take to complete them accurately and completely.

Jointly owned foreign assets are included on the D15 or D39, and the taxpayer or his agent should include answers to the joint property questions from the D4 on these forms.

Issues for HMRC

When HMRC receive completed accounts that include foreign property, the questions that they consider are:

• Does the IHT return constitute a complete return of the foreign assets owned by the deceased, transferor or trust? For example, if a house abroad is included in the account, would there normally be household goods?
• Has the value of these assets been ascertained in accordance with the correct statutory principles? These are set out in IHTA 1984 s160: the value for IHT purposes is ‘the price which the property might reasonably be expected to fetch if sold in the open market’. A foreign valuer used to a different tax system may not have valued on the statutory basis.

Where it is unclear if all the foreign assets have been included, or that they have been valued correctly, there is an increased likelihood that HMRC will ask for further information or seek an explanation of the value offered. HMRC stated that for the remainder of 2006 they would be paying particularly close attention to foreign assets. In appropriate cases they will open an enquiry and ask for further information to satisfy themselves that all of the foreign assets have been included and that they have been valued on the statutory basis. HMRC will advise if the estate is one that has been selected for enquiry in this way. Where it appears that the accountable people have been negligent HMRC will consider whether a penalty is appropriate.

(HMRC IHT Newsletter August 2006 p 1)

Comment

This rather follows on HMRC’s current (justified) crusade on probate values of household and personal goods. After all, it is simply a matter of applying the legislation.

Note that it will not be possible to comply with IHTA 1984 s 160 in every case. Where for example investments are held by a Swiss Bank, the Bank will give a market value at date of death only once probate has been obtained. And so in applying for probate reliance must be placed on the last available valuation.

Matthew Hutton MA, CTA (fellow), AIIT, TEP