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Chambers UK January 25, 2017

Inheritance tax returns

If you are responsible for delivering an inheritance tax account you have a legal duty to:
  • Deliver the account within the time allowed;
  • Provide a corrective account and corrected information and documents;
  • Tell HMRC without unreasonable delay if you find out that any account, information or document is incorrect to minimise liability for penalties.

Inheritance tax and interest

To comply with HMRC requirement, the IHT400 must be lodge with HMRC within the 12 months of the date of death. HMRC’s Inheritance Tax Toolkit is intended to identify common areas of risk in connection with completion of the IHT400 and identifies for main areas of risk:

  1. valuations
  2. omissions
  3. using out of date law
  4. inadequate record keeping.

Common omissions on IHT400 forms relate to:

  • jointly held property, which must be included even where it passes by survivorship, and includes liquid assets as well as real property,
  • interest in trusts, including assets held under the statutory trusts created on a previous intestacy,
  • foreign asset valuations where appropriate,
  • full details of pre-deceased spouse to claim the transferable nil rate band. There is no automatic entitlement to this. It needs to be claimed. There is a time limit of 24 months from the date of the second death to claim this on IHT402. foreign asset valuations where appropriate, interests in trusts, including assets held under the statutory trusts created on a previous intestacy,

Interest on inheritance tax payable becomes due on the first day after the end of the six month following the end of the month in which the date of death occurred. For example, if the date of death is on 2nd March 2012, interest will start to run from the 1st October 2012. It is therefore always preferable, where possible, for the IHT return to be lodged within that six month period following the date of death. Apart from anything else that avoids the need to complete the interest calculation in Form IHT400C! The interest can be calculated using the interest calculator on the HMRC website.

Beware of leaving submission of the IHT return to a date too close to the end of that six month deadline; if you are going to exercise the instalment option in respect of inheritance tax payable on real property, the due date of the first instalment option has to be more than 30 days from the date you complete Form IHT400C and make the calculation. If not, then you will have to prepare the calculation on the basis that one of the ten instalments is payable.

Of course where IHT is payable in respect of non-instalment option property, the IHT will be payable in full in respect of that non instalment option property when the IHT400 is lodged with HMRC, irrespective of the date. Interest will only be relevant if the form is being lodged after the end of the six month in which the date of death occurred.

 

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