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HMRC have produced draft guidance on the circumstances in which they may accept late elections under Finance Bill 2007, cl. 65, which allows them to use their discretion in accepting late elections from taxpayers for IHT treatment of assets.

Finance Bill 2007 Clause 65 concerns the time limits for elections in relation to the “pre-owned assets” (POA) income tax charge in Finance Act 2004, Schedule 15. Broadly, Schedule 15 was introduced to prevent avoidance of IHT. It provides for an income tax charge, from 6 April 2005, on the benefit people derive from having free or low-cost enjoyment of assets they formerly owned or provided the funds to purchase. As an alternative to the income tax charge, taxpayers can instead elect for IHT treatment on the relevant assets. However,  there is a time limit for doing so, which is the same as the SA deadline for making a return for the tax year in which an individual is first liable for the POA charge. So for individuals who are liable for say, 2006/07, the deadline is 31 January 2008. The new measure contained in Finance Bill 2007 will allow HMRC to accept elections for IHT treatment that would otherwise be too late.
 
Subject to Parliamentary approval, the amendment outlined above will be deemed to have come into force on 21 March 2007.

In the draft guidance which will sit along side the new provision, HMRC state that they will accept late elections where an event occurs which is "beyond the chargeable person’s control". In general, HMRC will accept a late election if the chargeable person can show that an event beyond their control prevented them from sending 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, HMRC are unlikely to accept that they were genuinely prevented from delivering the election on time. Examples of such circumstances include an unforeseen event disrupting the normal postal service; loss of records etc. through fire, flood or theft; serious illness; or the death of a close relative or partner.

In addition, there may be cases where, given the overall circumstances, HMRC 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 Schedule 15, and elected within a reasonable time of becoming so aware.

HMRC would welcome comments on the draft guidance by 30 June 2007.

Link

HMRC: Clause 65 Finance Bill 2007 - draft late election guidance for comment