We are advising a trust which has made many (let’s say 40) capital distributions over 10 years which are subject to exit charges. These weren’t reported at the time due to a mistake over the settlor’s domicile so we are submitted them now. We’ve called HMRC to discuss a single return with a spreadsheet but due to Covid absences they were not very helpful.
Has anybody submitted a single return in situations like this? I would have thought HMRC would much prefer a single spreadsheet rather than 40 returns for thruppence each, but the computer may not be able to handle it.
I have taken this approach, with success (ie submitted a list of distributions dates/amounts rather than full IHT100 for each one). You will need to confirm to HMRC that nothing else relevant has happened since the last ten year charge, so that the rate of tax is the same as it was for the ten year charge. When asking them to accept this method I do point out that it would seem to benefit neither side to do a full IHT100 for each distribution.
I have previously agreed with HMRC an amalgamation of various exit charges (with very small amounts of tax payable) that occurred in the same tax year on the basis that treating these separately would have incurred disproportionate penalties (as each exit would have attracted a penalty of up to £3,000 under s.245A IHTA 1984 (plus the initial £200 penalties). This was through the Worldwide Disclosure Facility rather than on a IHT100 but the principle is the same. I assume penalty notices are issued per return so HMRC may not be willing to accept a single return. If it is an offshore matter within the Requirement to Correct legislation it could be dealt with through the WDF with no returns.
I’m sorry I can’t help with your question, however, has the trustee/beneficiary/settlor considered asking the court for the remedy of rescission due to mistake? if there is an offshore element and a failure to correct the penalties could be substantial so possibly worth considering if a genuine error was made as to domicile. The remedy could - potentially - apply to the distributions or the original transfer into the trust.
I was dealing with a COP8 for an offshore trust and its beneficiaries. But was told by HMRC officer handling the COP8 that IHT issues will be dealt with separately by the IHT lifetime team.
It was in 2017 I have submitted 24 Late IHT exit charge returns (covering 2008-2016) with a cover letter explaining the situation, providing comprehensive details why reasonable excuse is due OR 100% reduction under the abatement rules and a summary in PDF of the excel of the tax and late interest for each return/exit charge. Sent it all by Courier.
The trustees paid the IHT and interest at the time of sending the package.
I sent an appeal later as initially, they did not accept that penalties were not due.
The appeal for penalties was accepted. Circa £10k in penalties avoided.
It took 5 months to get it resolved, even at that time when COVID was not an issue, so generally, it will take time, and with COVID-related delays even more time.
I also found that on the phone they are not very helpful, even before COVID, so in the end, I decided not to use any shortcuts to avoid delays where the staff ‘does not get the shortcut’ method.
Before Covid we had to deal with 30 years worth of IHT returns - the settlor had been wrongly advised about his deemed domicile such that he was actually already deemed domiciled when he had set up the trust 30 years earlier believing himself to be non-domiciled. The trustees strongly wished to protect their reputation so voluntarily came forward to advise HMRC and pay the tax in full. In addition to the two 10 year anniversary event forms, there had been monthly capital distributions almost throughout.
We did complete the two anniversary event forms correctly and in full, but rather than significant numbers of separate exit charge event forms, we listed them all on a spreadsheet with details of the relevant exit charge and how it had been calculated, together with a very full explanatory letter, stressing the voluntary nature of their disclosure. HMRC accepted this, although they did issue two automatic £100 penalties for the late anniversary event forms and wouldn’t accept an appeal.
I have generally always found the lifetime IHT team to be very helpful, even under the current circumstances. However it is very annoying that you cannot reach them directly using the trust and Estate helpline (which has itself discontinued its Agents Dedicated Line option) but rather you have to go through another department so have to explain yourself at least twice, when you eventually get through!
I have taken this approach with some eventual success although I submitted returns on an annualised basis. In my situation there were a number of very small distributions over a number of years that needed reporting. It took HMRC almost 3 years to do anything with them but (after much chasing) they were happy with the approach and penalties were avoided.
Thanks all.
We did get a helpful call back in the end and HMRC have said they will accept quarterly returns. They won’t offer any thoughts on penalties for now.
Andrew Goodman
Osborne Clarke LLP