I have a situation where an estate is clearly taxable. There is some evidence that the deceased was owed a significant sum (c £100k) at the date of death, but there was nothing in writing, and there’s obviously a risk that the debt could not be proved.
If the claim is included as an asset of the estate then it will mean having to find an additional £40k, which will not only be very difficult, but would potentially be losing the £40k if it’s subsequently decided that the litigation risk is too great or the claim is pursued and lost.
However, if it’s not included and a recovery is made there would be a potential accusation that the value of the estate had been deliberately under-reported.
Is it therefore possible simply to mention it as a form of `contingent asset’, so that IHT would only be payable if there was an actual recovery? I’m concerned that even including mention of it in the IHT400 might trigger a charge.
I believe the solution is to value the claim on a market value basis. Very crudely, if you estimate a 40% chance of recovery, the value might only be £40k (or less).
You can/should refer to the valuation in the return.
This does mean that the IHT is unlikely to match up with the end result (win or lose).
For anyone who’s interested I did actually manage to speak to a human being at HMRC today. He said that the claim should simply be referred to in the `Additional information’ section at the end of the IHT400, but was quite clear that it did not have to be declared as an asset. He said that, as one would expect, if a recovery was made at any future point then IHT would become payable on the net proceeds.
So credit to HMRC for a remarkably helpful and straightforward answer for a change (though I may not be saying that when a different officer issues an assessment on the value of the claim!)