We are dealing with an estate where land value was renegotiated with the DV, HMRC raised an IHT calculation based on the agreed renegotiated value, we paid the tax and HMRC then issued clearance. HMRC have subsequently raised a revised calculation, whereby a significant amount of additional IHT is due, on the basis that they made an error in their previous calculation. We have been back to HMRC on the basis, aside from anything else, that this is unfair but HMRC say that the additional tax is payable. Does anyone have any experience of dealing with an issue like this?
Did you obtain a Clearance Certificate, or just the usual informal letter from HMRC? If the former, there is statutory authority and HMRC cannot wriggle out of it as they are trying to do. If the latter, you must consider the terms of their informal letter but I’d not be optimistic.
Is the clearance a formal one on form IHT30, or a spontaneously generated ‘file-closing’ letter from HMRC?
If the former, then in the absence of fraud or failure to disclose, HMRC is bound by the certificate- see sec 239 IHTA. I’ve never been sure about the effect of the file-closing letter, but I imagine
that in some cases it could create an bar to enforcement, if the recipient of the letter had altered his position in reliance of it.
You should treat the non-statutory assurance (IHTM40151) given by standard letter SL135 in all respects as if the taxpayer had applied for and you had issued formal clearance on form IHT30. You should therefore consider the instructions in this section before you issue a non-statutory assurance.
Once you have issued a non-statutory assurance you should treat any further developments on the case in accordance with the instructions in this section and on the basis that clearance has been given. This paragraph does not apply to Estate Duty cases.
As the non-statutory assurance letter has the same effect as a formal clearance certificate there is no need for the taxpayer to request a certificate once it has been issued. However, if they choose to submit a form IHT30 you should still issue it if they have paid all the Inheritance Tax that is due.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
You should treat the non-statutory assurance (IHTM40151) given by standard letter SL135 in all respects as if the taxpayer had applied for and you had issued formal clearance on form IHT30. You should therefore consider the instructions in this section before you issue a non-statutory assurance.
Once you have issued a non-statutory assurance you should treat any further developments on the case in accordance with the instructions in this section and on the basis that clearance has been given. This paragraph does not apply to Estate Duty cases.
As the non-statutory assurance letter has the same effect as a formal clearance certificate there is no need for the taxpayer to request a certificate once it has been issued. However, if they choose to submit a form IHT30 you should still issue it if they have paid all the Inheritance Tax that is due".
and
" [para 40014] "The clearance certificate means that the taxpayer will not have to pay any further tax on the transfer described in the certificate, unless IHTA84/S239 (4) applies, where
· there has been fraud or failure to disclose material facts (IHTM40143)
· additional assets (IHTM40142) are later shown to have been included in the transfer
· too great an increase in the nil rate band has been claimed on the death of the surviving spouse (IHTM43067)
· further tax becomes payable as a result of statutory amendments after issue (IHTM40147"
I am fairly certain that when HMRC introduced “closure letters” some years ago they said that a closure letter would have the same statutory authority as a formal clearance certificate but I cannot
recall where this was published.
Sometimes, to deal with these people, your clients just have to consider legal action or the threat of it. Many will offer pro bono assistance where that is appropriate.
We have just had a similar experience with HMRC. Tax Counsel and lawyers were involved in making an application for Judical Review using the pre-action protocol, which resulted in HMRC withdrawing.
Lisa - are HMRC trying to go back on something they have agreed or have they just made a mistake in the assessment (ie including the agreed value of £50k at £5k)? If it is the former then subject to the exemptions listed in Malcom’s post I would say that the clearance should hold. If it is the latter (just correcting a mistake in an assessment so that the correct tax is charged) I am not so sure and would be interested in other’s views.
While not disagreeing with the previous replies, I would like to know more about the nature of, or reason for the change made by HMRC to the liability. Despite the statutory position, shouldn’t we bear in mind the general thrust of ‘Professional Conduct in Relation to Taxation’?
I have a case where a clearance certificate has been issued (IHT30). On investigation, it appears that the solicitors handling the case had submitted a revised IHT account, increasing the IHT payable following the sale of certain assets rather than paying CGT on the uplift. Clearly too much tax has been paid but would this be considered a material fact? If so, can the executors and/or the beneficiaries apply for a refund of IHT (net of the CGT payable)?
I would agree. If HMRC have given clearance on a point of principle then it should stick. If it’s a genuine error such as you say including £5k not £50k, then I think the tax should be paid. I would also say that in these circumstances such an error should have been picked up when the comp was received.
If this error was noticed when the comp was issued and not mentioned to HMRC at the time then penalties would rightly be due.
My understanding is that the provisions of s.241 IHTA 1984 are independent of those of s.239 IHTA 1984, so that a claim for repayment of IHT may be made up to 4 years from the date upon which IHT was last paid regardless of whether clearance has been issued.
If a repayment is obtained, a fresh application should then be made for clearance under s.239, otherwise the taxpayer will be liable for any additional IHT that might arise for whatever reason, up to the amount of the refund.
The challenge in the case in question will be to persuade HMRC that the situation needs to be revisited.
In the circumstances, should the solicitors who dealt with HMRC be put on notice of a claim? If the amount of tax involved is significant, their insurers might want to manage the communications with HMRC, although I suspect the preference would be for you to control the debate with HMRC and for the insurers to reimburse your costs of so doing.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
It’s always been my understanding that once you have a Clearance Certificate, HMRC will have asked enough questions beforehand, and hedged it round with sufficient reservations, that you can rely
absolutely on its accuracy. I don’t like the thought of some equitable claim by HMRC that maybe overrides the Certificate.
The PCRT is greatly approved by HMRC as regards the conduct to be expected from advisers. Its own conduct leaves much to be desired. Despite the pious words about the objectives of and its proper approach to it, the review process is as much use as a referral to Xi Jinping.
ARTG 4620: “The role of the review officer is not to defend the disputed decision, but to consider the decision or assessment and the surrounding information objectively.” My experience of the review procedure (other forum members please dissent with examples) is that these words are intellectually dishonest. I could also do a line by line exegesis of the Litigation and Settlement Strategy to prove the theorem.
I would never accept an informal letter (or any similar assurance) instead of a clearance certificate as I would have unhesitatingly 50 years ago. JR is just not a worthwhile remedy. Occasionally HMRC are found out: see oao Ingenious Media [2016] UKSC 54. Largely HMG is in desperate thrall to the people who collect its revenue. I attach no more credence to what those people say nowadays than Orwell did to the edicts of the Ministry of Truth.
A claim for repayment of overpaid IHT under s 241 cannot be denied because of the prior issuance of a certificate of discharge under s 239 (subject to the 4 year limit referred to in s241(1)). It is not uncommon for IHT liabilities to be settled and a certificate issued before any decision has been taken by a non-domiciled individual (married to a domiciled individual) as to whether a claim for deemed domicile status should be filed.
HMRC’s approach to matters “equitable” has just been demonstrated in Michael Vaughan’s case [2020] EWHC 1357 9CH). Judge Hodge found that a rectifiable mistake had been made but refused, just as HMRC asked him, to grant the equitable remedy of rectification because the parties had already done so themselves without any accompanying tax motive. Apparently if their successful attempt at rectification had been tax-motivated, they would have won and HMRC would then have been bound by their rectification. You could not make it up and now you do not need to.
The case also represents a volte-face by HMRC after the last 20 years of striving for the opposite outcome in that here they did not want to tax Mr Vaughan under PAYE but rather as self-employed.
It escapes me why it was not argued, semble, that the original and most deliberate use of a personal company to provide his services was tax-motivated, so that such motive must also have been present in making the later rectifiable agreement and its even later rectification.
The length of the Chancellor’s foot is now fiscally uncertain as regards rectification inter partes unless you blatantly intend to avoid tax. So Recital (A) methinks.