I would be most grateful for any suggestions as to how to deal with this situation. Mr A died in 2017 and his Estate passed to his surviving spouse. Mrs A died in 2021 and her Estate has long since been wound up.
7 years after Mr A’s death, i.e. now, an insurance company announce that they underpaid the Executors of Mr A’s estate £5k and now wish to pay it to the appropriate person (which will be the beneficiary of Mrs A’s estate, being her son).
The payment will include modest interest.
We can declare the modest interest on the son’s tax return but theoretically the £5k should be subject to IHT as it was a chargeable transfer on death from Mrs A to her son. But, how should this be communicated and paid to HMRC?
I presume no certificate of discharge was obtained.
s241 sets out the time limit for recovery. 4 years from the date tax was last paid If there is no carelessness or deliberate conduct this should apply. Carelessness is non-exhaustively defined in s240A but only applies if information supplied was discovered to be inaccurate. I do not believe that covers your situation but indicates that informing HMRC may be prudent. Clearly it cannot be said that reasonable care was not taken.
It seems the loss of tax relates to Mrs A’s estate. Mr A’s was totally exempt so it would have passed to his wife when tax may or may not have been payable.
IHTM30462 says “where tax attributable to that property is paid in accordance with an account duly delivered to the Board and the payment is made and accepted in full satisfaction (or would have been had there been an amount of tax to pay), IHTA84/S240(2).” The words in brackets suggest that if no tax was due and so no account delivered that does not matter. There is no such qualification in the Act and it seems likely HMRC would not regard an omission like in your case as a careless failure to report an inaccuracy.
On the basis that you have discovered an increase in assets in Mrs A’s estate within 4 years of IHT last being paid (as she died less than 4 years ago that can only be the case), I believe you are obliged to notify HMRC of the change in value of the inheritance from the estate of Mr A, otherwise you will fall foul of s.240 IHTA 1984, possibly 240(5) if you have deliberately omitted to inform HMRC of the change in value. If you have a clearance certificate on form IHT30, this does not provide any protection for non-disclosure in these circumstances.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I have been reading this thread with interest. Mention is made of four years, but the original query related to a previously unknown asset coming to light. My understanding is that even if the death had occurred more than four years ago, the taxpayer still has a legal obligation to report it and pay tax and interest as an omitted asset does not fall within IHTA84/S240(2). It is the 20 year time limit that applies– S240 (7) - provided there was not deliberate omission. If there was then there is no time limit for the recovery of unpaid tax.
I suggest that the omission could not be categorised as either careless or deliberate (concealed or not). Hence no penalties due. IHTA 1984 s 260(2) offers no protection (even if HMRC have earlier accepted payment of IHT).
It therefore seems to me that the time limit for recovery of the non-paid IHT is 20 years (assuming no deliberate behaviour).