I inherited this estate from another solicitor after a fall out. We are now looking to wind things up. In the original IHT account (deceased died years ago) a property was included at a desktop value, IHT was paid on the account and HMRC never raised an enquiry into the return.
There was some suggestion by a family member that the property was overvalued by about £100k in that original valuation (no wonder HMRC didn’t enquire!). This turned out to be about correct when we advised that a current day (RICs) valuation should accompany an appropriation in satisfying part of the residue. Because of this, we asked the valuer to also take a view on the DOD value too. They came up with a figure some £80k less than the amount included in the IHT account.
Having presented a C4 and the DOD redbook valuation to HMRC to reclaim the IHT they are refusing to entertain the C4 on the grounds that they cannot amend the values on their system because the unique HMCTS code has been presented. They are suggesting that the only way to reclaim the IHT is via a loss on sale IHT38, but that is not relevant here. They are also stating that if things were the other way round, the gain is subject to CGT not IHT. I think they are missing the point.
I have had an extremely similar scenario happen previously where the C4 was accepted without question, so I am confused. I am yet to go back to HMRC on this and I intend to spell out the situation clearly given there is some confusion. Before I do so, I wonder whether anyone here has any thoughts/guidance/similar experiences?
I have no experience of this but IHTM40141 states:
“Decrease in value
If the taxpayer claims that the value of any assets in the estate should be decreased you should deal with their claim on its merits whether or not a certificate has been issued at that title.”
I assume it is the clearance code they are referring to, not the code issued to HMCTS to apply for probate which is issued before values have been ascertained.
The legislative background is s.217 (defective accounts) and s.241 (overpayments). The thrust of each is different.
The first is a relaxation of the duty to submit an account within 6 months. The second requires the taxpayer to prove an overpayment with a 4 year time limit. A previous certificate of discharge does not seem to prevent an overpayment claim.
IHTM10701-4 is rather perfunctory-procedural but often HMRC’s full practice is not always vouchsafed to the public.
S.241 leaves open the question of how one can appeal. If a notice of determination was issued it is likely to be out of time to appeal, unless HMRC use their discretion to allow it. If it hasn’t can they be induced to issue a NOD? If neither of these works JR seems to be the remedy.
There is no self-standing appeal or alternative procedure if under s.241 HMRC are not “satisfied”. They may insist on the time limit. Especially if the CGT knock on effect is out of time for a consequential adjustment.
If it is in time, a declaration could be sought in JR proceedings (cost and hassle) that they have been Wednesbury unreasonable in being dissatisfied. Much would depend on the facts and evidence.
Your natural charm (my Achilles heel) may prevail but time limits are designed to secure administrative finality and are largely treated in tax matters as sacrosanct. Not in itself unreasonable therefore.
An IHT30 has not yet been applied for, and the original IHT account was an IHT400. Further, we are well within the 4 year time limit.
There also was not a NOD included in their reply, they simply came back saying they could not process the C4 corrective account.
In part my query was checking my sanity that a C4 account was the right way to go to make a overpayment claim for the original IHT paid, given now we know an asset was overstated having this later valuation. In my experience we have never had a problem doing this.
Their letter refusing the C4 seemed to suggest they would need a IHT38 but refer to a property sale, which is not relevant here.
Thank you Jeremy. Re the code, that would make a lot more sense if they were referring to that, but they were definitely referring to the unique code issued by them in order to apply for probate.
I picked up on the phrase “years ago”. A C4 seems right to me so it appears that you are encountering the classical bureaucratic cognition deficit. As long as I was not instructed to pursue appeasement, my second preference strategy was exasperated confrontation by the printed word (my first preference, physical violence, being SRA-inappropriate).
I have had a similar situation, but there are some differences to bear in mind:
Background (before I was instructed)
The executor originally dealt with the estate themselves without taking professional advice.
They submitted a valuation in the IHT400, which was an estate agent’s suggested marketing price (with the agent having advised they expected the property to sell for less on the open market).
The executor obtained probate (therefore HMRC had already issued the HMCTS code/stamped IHT421).
The property was then sold, and as expected, it achieved less than the marketing value (£15,000 less).
I was instructed approx. 2 years after the sale.
After I was instructed
I advised the executor as to the basis upon which land/property is to be valued at death and highlighted the issue with the estate agent’s valuation used and submitted in the IHT400.
I obtained a RICS surveyor’s historical desktop valuation, to establish an appropriate professional opinion on what would be the accurate DOD value.
The surveyor valued the property at less than the estate agent’s suggested marketing price (unsurprisingly).
I submitted a C4, using the surveyor’s valuation as evidence of the ‘correct’ DOD value.
The reasoning given in the C4 (as to why this was a matter of correction of the originally submitted value being appropriate) was that the executor had previously not appreciated the inappropriate use of the estate agent’s suggested marketing price, and after taking professional advice, they were now aware of the previous incorrect basis for valuation they had used, and a RICS valuation had been obtained to establish a valuation on the correct basis.
Within the application, I referred to various HMRC manuals and HMRC guidance which: a) set out how a claim for correction of a DOD value of land/property should be considered (i.e. that it should be considered on the same basis as for valuation of land/property submitted in an IHT400); and b) explain how a valuation of land/property should be considered when submitted in the IHT400 (i.e. open market value at death and how open market value is to be established).
Outcome
HMRC technical accepted the application and approved a refund of IHT.
The difference in value was lesser in my application, however the principles do not appear to differ all that much.
HMRC can correct a land/property value after probate has been granted, but it’s not a ‘given’ that they’ll agree to do so. You have to explain/justify to them why it’s appropriate to correct the DOD value previously submitted, instead of making an IHT38 application.
I don’t know the exact content of your original application, but in my experience/view, HMRC’s reasoning of, “we’ve already issued the unique code for grant application so we couldn’t possibly correct the DOD value now”, is just not right and their own internal manual contradicts that argument.
It’s great to learn of such granular encounters with HMRC. The Manuals largely deal with principles and do not and cannot disclose case-specific detailed practice.
In other jurisdictions this is so, by means of published anonymised rulings. These have no standing as precedents but they inform decisions about whether to challenge the tax authority in correspondence and then in litigation. This not only saves clients’ costs but presumably the extra administrative time involved in the issuing process saves tax authority time as well.
In the UK, practice statements have declined in number, although we have Spotlights on avoidance arrangements, GAAR panel opinions and occasional Q&As emerging from professional body interactions. I still find value in some old SPs issued before the Manuals were published.
Clients crave certainty and even a self-serving, or in-law dubiously correct, pronouncement of HMRC is a significant improvement over a known unknown. Even a diehard cynic comme moi finds it hard to believe that HMRC deliberately refrain from doing this just to preserve their advantage of being a party to every single tax dispute including the huge number of those whose outcome is not public.
On valuation there is a wealth of information in the VOA Manuals which are perhaps not on the practitioner’s horizon in the way tax Manuals are.
From memory, I think referred to one of the VOA manuals in my application.
I also find the more you tell the case handler where to look in any official guidance, the more likely they are to take the relevant factors into account. I think it must be very difficult, as a case handler at HMRC, to know what to search for in the manuals if you are unfamiliar with the actual legalities which govern any claims/submissions made.
I don’t personally think (in general, anyway) that case handlers at HMRC are wilfully refusing applications in order to win an argument or keep funds (where it wouldn’t be lawful for them to do so). My instinct is that it’s more to do with an excess of incoming reports/claims, not enough staff, and inadequate training.