We are dealing with an estate worth c£2m (intestacy). The clients have signed a DoV so that 10% of the estate passes to charity in order for the reduced rate of IHT to apply.
Question – do we need to actually pay the amount to charity before HMRC grant the relief, or can we pay the reduced tax, obtain the grant and then pay to charity? IHTM35124 makes reference to the fact that we only need to provide evidence that the charity are aware property is to be redirected to them – however when we contacted HMRC by phone they advised that they would want a donation receipt.
Secondly, the total tax bill (at 36%) is c£800,000 of which £500,000 is due now from non-property assets and £300,000 via instalments from property assets. The due date is 31 January 2019.
Question - in order to receive the stamped IHT421, do we need to pay the amount from the non-property assets now together with the first instalment from the property assets, or will HMRC issue the 421 without the first instalment from the property assets which will then allow us to obtain the grant realise assets and then pay the first instalment before 31 January 2019?
I Will Solicitors Ltd
With regard to the first question, my understanding is that HMRC merely needs to be satisfied that the charity has been advised of the gift under the variation, so that copies of correspondence exchanged with the charity should suffice. Copy correspondence addressed to the charity alone is not sufficient, as HMRC cannot be certain it will have been sent/received by the charity.
As regards the second question, my understanding is that HMRC will usually expect the first instalment on the instalment option property to be paid on the grant application as the due date of payment of the first instalment is the same as for payment of the non-instalment tax.
On the ones I have dealt with I have sent a letter notifying the charity of the DoV with a second copy for them to sign and return as acknowledgement. These I have then sent to HMRC and they have accepted them and amended the assessments. I don’t see there is a need to have actually paid the charity the increased amount - it is sufficient that they know.
On the tax payment point as the due date is more than 30 days away I would not pay anything on account against the IOP if making the application now. I believe this is supported by the wording of the calculation that goes with the IHT400
Greene & Greene