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:
www.inlandrevenue.gov.uk