Deceased made pension changes when he knew he was terminally ill. He survives 2 years and 1 month. Does this mean no IHT charge can arise, or can HMRC still challenge this? There seems to be some inconsistency in the manual over this.
Where does the two year period come from, is it statutory or concessionary?
Simon Northcott
The IHT409 requests information relating to pension changes only in the two years prior to death. HMRC apparently take the view that any dispositions before that time are likely to have been of nominal value (or, possibly, s.10 IHTA 1984 will have applied). However, the two-year period has no statutory basis. It is merely a presumption that the member was in good health at the time of the disposition, and it only applies in the absence of any evidence to the contrary (see IHTM17043). I would therefore expect HMRC to request further information if they became aware that the scheme member understood that he was terminally ill at the time of the disposition.
Depending on the nature of the disposition, the recent decision of the Court of Appeal in HMRC v Parry & Ors [2018] EWCA Civ 2266 may be material.
Matthew Harrison
Babbé LLP
Thank you Matthew. Would you consider there is an obligation to inform HMRC in the IHT409 of his state of health? In the guidance it only seems to require this in relation to evidence as to the value of any transfer made within two years.
Simon Northcott
There is no obligation to inform HMRC in the IHT409, but if you consider that the disposition involved a transfer of value then I would have thought that it should be disclosed in the IHT403. If you consider that it did not involve a transfer of value then there is no reason to disclose it.
Matthew Harrison
Babbé LLP
Mindful of the potential damage to a professional’s reputation should HMRC decide that they have transgressed by “facilitating” the avoidance of tax through a failure to properly disclose, in situations where the 2 year period has expired but the professional is not entirely comfortable that the disposition is not disclosable, it may be appropriate to set out the circumstances in a covering letter to HMRC, seeking confirmation that it is not a taxable event. Whilst the beneficiaries may be unhappy - feeling that the professional is policing arrangements on behalf of HMRC - in reality, is this not the direction in which professionals are being pushed, and damned either way.
Paul Saunders
I fully agree with Paul on this.
While not all members of the forum will be members of one of the professional bodies that has signed up to the latest Professional Conduct in Relation to Taxation rules, my view is that, wherever we think that HMRC may interpret things in a different way to us, perhaps because of a doubt such as this case, or because of a view expressed in HMRC’s manuals, it is our duty to tell our clients that we must draw this to HMRC’s attention.
This does not, of course, prevent us expressing, clearly and firmly, what we believe the correct position to be and inviting HMRC to agree (and telling them that we will take their silence on the point to constitute their agreement).
**Anthony Nixon
**Irwin Mitchell Private Wealth
Certainly, if you are unsure whether the disposition was a transfer of value or not, it would be appropriate to disclose it in a covering letter.
Matthew Harrison
Babbé LLP
Similarly, if you are satisfied that the disposition was not a transfer of value but have reason to think that HMRC may disagree (as may well be the case here), it would be appropriate to disclose it in a covering letter.
Matthew Harrison
Babbé LLP
So, on reflection, my earlier comment should have read: There is no obligation to inform HMRC in the IHT409, but if you consider that the disposition involved a transfer of value then I would have thought that it should be disclosed in the IHT403. If you consider that it did not involve a transfer of value then there is no reason to disclose it in the IHT409 or the IHT403. However, if you are unsure, or you have reason to think that HMRC may disagree with your analysis, it may be appropriate to draw that to HMRC’s attention in a covering letter.
Matthew Harrison
Babbé LLP