IHT Assessment Time Limits

I would be grateful for forum member’s views on the following and whether or not HMRC are now entitled to issue an assessment.

Mrs A died in 2000. Mrs A had been married to Mr B who died last year.

At the date of her death Mrs A had already divorced Mr B some years previously and had married Mr C in 1984.

Following the death of Mr B a policy of life assurance which was held under the Married Woman’s Property Act of 1882 has matured and is now payable to Mrs A’s estate. This policy was taken out by Mr B in 1974 when they were still married.

At the time when Mrs A died, Mr B was not involved in the administration of her estate at all and the policy had clearly been forgotten. As a result this policy was never reported for inheritance tax purposes on the return for Mrs A’s estate. Mrs A’s estate was sizeable and the executors filed the appropriate forms, paid the tax and received clearance from HMRC based on the returns as submitted.

When this policy came to light, I considered the provisions of s240 IHTA 1984 to see whether HMRC were now out of time for issuing an assessment. I also advised HMRC of the non-disclosure to take their views.

HMRC have advised that in their opinion this falls within the provisions of s240(6) IHTA 1984 under which they have 20 years to raise an assessment. They have commented that where an account has been delivered but which omitted an asset that is later disclosed, s240(2) does not apply as the tax attributable to the value of the undisclosed asset cannot have been paid in accordance with the account as delivered. For the same reason the time limits in s240(4) cannot apply.

It would seem that if the executors had reported an asset on the inheritance tax return but had got the value wrong then we would be within sub-sections (2) or, if they had been careless, within subsection (4) and HMRC would now be out of time to raise an assessment. However in a situation where the executors could not have known about this policy which has only come to light now, sub-section (6) says that they can issue an assessment.

Is this forum member’s understanding of the position as well?

Nigel Scase
Greene & Greene

This would be my assumption

Simon Northcott