INHERITANCE TAX: BETTER ADMINISTRATION AND COLLECTION

The provisions on the administration and collection of inheritance
tax will be strengthened and updated to improve voluntary compliance
and make them fairer to the vast majority of inheritance taxpayers
who comply with their statutory obligations. The main proposals are:

- the obligations for the provision of information by personal representatives will be extended to cover certain lifetime gifts. This will apply to deaths occurring on or after 9 March 1999;

- the rules regarding the Inland Revenue's charge for unpaid tax will be tightened. This will apply to deaths, transfers and other events occurring on or after 9 March 1999;

- the Inland Revenue will have a new power to seek relevant information from persons liable to deliver inheritance tax accounts without obtaining the prior consent of a Special Commissioner. This will apply with effect from the date of Royal Assent to the Finance Bill;

- penalties for taxpayers who do not comply with their statutory obligations will be revised. This will also apply with effect from the date of Royal Assent to the Finance Bill.

DETAILS

Delivery of accounts by personal representatives

1. At present, any person who is liable for inheritance tax on a transfer is required to deliver an account giving details of the relevant assets and their value. An account delivered by the personal representatives of a deceased person has to provide full details of the assets in the estate of that person at the date of his/her death.For deaths occurring on or after 9 March 1999, personal representatives will, in addition, be required to include in their
account details of any chargeable transfers made by the deceased within the seven years before his/her death. This information is also relevant in determining the amount of any tax chargeable on the death estate.

The Inland Revenue charge

2. At present, where any inheritance tax or interest on a chargeable transfer is outstanding, a protective charge for the outstanding amount is imposed by legislation in favour of Inland Revenue. The protective charge is on the assets to which the transfer relates. The charge does not extend to personal property (including any leasehold interest) transferred on the owner's death which vests in his/her personal representatives. Transfers of assets benefiting from
inheritance tax relief for heritage property also fall outside the current provision. This anomaly is being removed by extending the Inland Revenue protective charge to cover

- leasehold interests, for deaths occurring on or after 9 March 1999;

- tax charged on or after that date in respect of assets previously given heritage tax reliefs.

Power to call for documents etc.

3. Under existing law the Inland Revenue may, by notice given with the prior consent of a Special Commissioner, require any person to provide any information, documents etc. needed for the purposes of inheritance tax. There is no right of appeal against such a notice. However the Finance Bill will contain new rules for information notices issued to persons who are liable to deliver an inheritance tax account. The notice may be issued without a Special
Commissioner's prior consent but there will be a right of appeal. These new rules apply only to those persons who are required by the existing rules to deliver an inheritance tax account and will take effect from the date of Royal Assent to the Bill.

Penalties

4. Non-compliance, fraud, delay etc. will generally attract stricter penalties from the date of Royal Assent to the Finance Bill. The changes announced today bring figures appropriate in the 1970s (and
therefore now out of date) into line with the figures current in other parts of the tax system. The changes are set out below:

- Failure to deliver an inheritance tax account.

- up to a maximum #100 (currently #50 maximum) if the account is outstanding at the end of the statutory period (usually about 12 months after the relevant taxable event);

- plus up to #60 per day (currently up to #10 per day) once the failure has been declared by a court or the Special Commissioners;

- up to a maximum #100 after six months from the end of the statutory period if proceedings for declaring the failure are not started before then;

- Failure to deliver a return within the statutory period to a settlement period by a UK domiciled person but with non- resident trustees.

- will carry a penalty of up to #300 (currently #50 maximum) - plus a daily penalty of up to #60 (currently up to #10 per day) from the day on which the failure has been declared by a court or the Special Commissioners.

- Failure to comply with an information notice.

- up to a maximum #50 plus a daily penalty of up to #30 from the day on which the failure has been declared by a court or the Special Commissioners, where the notice is given
under the new information rules;

- up to a maximum #300 (currently #50 maximum) plus a daily penalty of up to #60 (currently up to #10 per day) from the day on which the failure has been declared by a court or
the Special Commissioners, where the notice is given under existing rules;

- For incorrect information provided by persons liable to inheritance tax.

- up to a maximum #3,000 plus just the extra tax based on correct information (instead of the current #50 maximum plus twice the extra tax), in cases of fraud;

- up to a maximum #1,500 plus that extra tax (instead of the current #50 maximum plus the extra tax), in cases of negligence;

- For incorrect information provided by others.

- up to a maximum #3,000 (instead of the current #500 maximum), in cases of fraud;

- up to a maximum #1,500 (instead of the current #250 maximum), in cases of negligence.

NOTES FOR EDITORS

1. Inheritance tax (IHT) was introduced in 1986 to replace capital
transfer tax. The current provisions on the administration and
collection of IHT are to be found in Part VIII (sections 215-261) of
the IHT Act ("IHTA") 1984. The provisions, including those on
penalties for non-compliance, essentially date from the 1975 capital
transfer tax legislation.

2. The personal representatives of a deceased person's estate are
required to deliver an account of all the 'appropriate property'
comprised in the estate (section 216 IHTA). However, the term
'appropriate property' does not cover chargeable lifetime gifts and
these can be relevant in determining the amount of any tax payable on
the estate itself.

3. The Inland Revenue's existing power under section 219 IHTA to call
for tax relevant information extends to any person, whether or not
he/she is liable to pay any IHT or deliver an IHT account. It can
only be exercised by a notice which has the prior consent of a
Special Commissioner and there is no right of appeal against the
notice.

4. The Inland Revenue's protective charge under section 237 IHTA for
any outstanding tax or interest does not cover tax etc. relating to
events which fall outside the definition of 'chargeable transfer' in
section 2(1) IHTA, for example, tax charged under section 32 IHTA on
loss of conditional exemption for heritage assets. Also, a leasehold
interest transferred on the owner's death is expressly excluded from
the protective charge.

5. There are penalties for failing to provide the required
information or account (section 245 IHTA), for providing incorrect
information through fraud or negligence (section 247 IHTA) and for
failing to put right any errors in the information or account
previously provided (section 248 IHTA).

INLAND REVENUE PRESS OFFICE
Media enquiries to: 0171 438 6692/6706/7327
(Out of hours:0860 359544)
Non-media enquiries to: 0171 438 6420/6425 (Office hours only)

Inland Revenue information is on the Internet:
http://www.inlandrevenue.gov.uk/