This snapshot, taken on
, shows web content acquired for preservation by The National Archives. External links, forms and search may not work in archived websites and contact details are likely to be out of date.
The UK Government Web Archive does not use cookies but some may be left in your browser from archived websites.

HMRC Inheritance Tax and Trusts Newsletter - April 2009


Inheritance Tax and Trusts

Inheritance Tax



Welcome to the April edition of the Inheritance Tax and Trusts Newsletter. If there are any issues you would like HM Revenue & Customs (HMRC) Inheritance Tax and Trusts to address in a future edition, please let the Inheritance Tax and Trusts customer service team know at:

David Shaw
Head of Inheritance Tax and Trusts


HMRC has developed one consistent penalty regime for inaccuracies in tax returns and other tax documents that will apply across almost all the taxes and duties HMRC administer. Under the new regime, if the liable person(s) take reasonable care to get their tax right HMRC will not penalise them, even if they do make a mistake.

Schedule 24 Finance Act 2007 introduced this new regime for Income Tax, Capital Gains Tax and some other major taxes. As a reminder, the new Income Tax and Capital Gains Tax regime applies to Trust and Estate Returns filed after 1 April this year. This change was covered in the HMRC Inheritance Tax and Trusts December 2008 Newsletter

Schedule 40 Finance Act 2008 contained provisions to extend this regime to many other taxes and duties including Inheritance Tax.

The commencement order for Schedule 40 has been published and the new penalty regime will apply to Inheritance Tax for all chargeable events that occur on or after 1 April 2009. The provisions of s.247(1)and(2) Inheritance Tax Act 1984 will continue to apply to events before that date.

So, for events on or after this date, the liable person(s) may be charged a penalty if they do not take 'reasonable care' in preparing their Inheritance Tax account or excepted estate return. There may also be a penalty if the liable person(s) subsequently discovers an inaccuracy but does not take reasonable steps to tell us about it. There is a lot more information about the new regime at: Take care to avoid a penalty, but what follows highlights some of the aspects of general interest and of particular relevance to Inheritance Tax.

The test is now of 'reasonable care' rather than 'negligence'. HMRC considers the personal representatives will have taken reasonable care where they

  • follow the guidance provided about filling in forms such as the IHT400 and IHT205/207/C5
  • make suitable enquiries of asset holders and other people (as suggested in the guidance) to establish the extent of the deceased's estate
  • ensure correct instructions are given to valuers when valuing assets
  • seek advice about anything they are unsure of
  • follow up inconsistencies in information they receive from asset holders, valuers and other people
  • identify any estimated values included on the form

Where the personal representatives leave all this in the hands of an agent, HMRC expects them to check through the form before signing it and to question anything that does not accord with what they know about the deceased. Simply signing an account completed by an agent is not taking reasonable care.

And where Inheritance Tax is payable other than on death, HMRC expects the transferor (or trustees) to deliver a full and complete return of the transaction concerned, and to have sought professional advice as necessary. Again, simply signing an account completed by an agent is not taking reasonable care.

The new penalty regime identifies three levels of behaviour that give rise to an inaccuracy in an account or return that may give rise to a penalty

  • careless,
  • deliberate
  • deliberate and concealed

The less serious the reason for the inaccuracy, the smaller the penalty.

In addition, HMRC will have regard to the nature of disclosure of the inaccuracy - whether it was prompted or unprompted. The legislation sets out a minimum penalty for each combination of behaviours.

Behaviour Disclosure Minimum penalty Maximum penalty
Careless Unprompted 0% 30%
  Prompted 15% 30%
Deliberate Unprompted 20% 70%
  Prompted 35% 70%
Deliberate and
Unprompted 30% 100%
Prompted 50% 100%

The new regime caters for a penalty to be charged where a document given to HMRC contains an inaccuracy in connection with a deduction, exemption or relief taken against the estate or transfer. This includes the information given on the relevant supplementary pages to the account and makes explicit what was implicit in the Inheritance Tax legislation.

The new regime also contains a provision that allows a penalty to be charged where an inaccuracy in the liable person's document was attributable to another person. This is particularly relevant to Inheritance Tax where the personal representatives will inevitably be relying on other people to provide them with information about the deceased's estate.

Where it can be shown that the other person deliberately withheld information or supplied false information to the liable person, with the intention that the Inheritance Tax account or return would contain an inaccuracy, a penalty may be charged on that other person. But that will not necessarily mean that the personal representative themselves may not also be chargeable to a penalty. If the withheld or false information gave rise to inconsistencies in the information they had received about the estate and they did not question those inconsistencies; the liable person may still be charged a penalty for failing to take reasonable care as well.

Procedurally, HMRC will continue to discuss with you any case in which it is considered that a penalty may be charged. The extent to which you are able to help HMRC with those enquiries and provide copies of any documents requested will govern the extent to which the maximum penalty payable can be reduced. It is hoped that, as now, the majority of penalties will be settled through discussion.

If HMRC is unable to agree that a penalty should be charged, or the amount of a reduction, a penalty assessment will be issued. It is this document against which the liable person can appeal, and they will then be subject to new processes that apply (also from 1 April 2009) within the tribunal system. Factsheet HMRC1 - 'HM Revenue & Customs decisions - what to do if you disagree' explains how to appeal. Further details on the new tribunal system can be found in the next article.

The new tribunal system will include the option of asking HMRC to conduct an internal review of the decision to charge a penalty. Alternatively, or if the internal review upholds the decision to charge a penalty, the liable person will be able to ask for the case to be heard before the First-tier tribunal of the Tax Chamber.

Tribunal reform and reviews of HMRC decisions

Among other changes that came into effect on 1 April 2009 are two which will have an impact on the way in which taxpayers and HMRC resolve disputes between them.


All of the former tax tribunals, including the General Commissioners, Special Commissioners disappear from 1 April to be replaced by a First-tier Tribunal of the Tax Chamber. Where appeals from the General and Special Commissioners formerly went to the High Court (or Court of Session in Scotland or Court of Appeal in Northern Ireland) those appeals will now be heard by an Upper Tribunal of the Tax Chamber. Appeals from that tribunal will be to the Court of Appeal or Court of Session.

For Inheritance Tax there will remain a right to apply to the High Court for an appeal to be heard there where the issue is substantially confined to questions of law.

Appeals relating to the value of land will continue to be heard by the Lands Tribunal.

Reviews of decisions

The changes to the tribunal system afford HMRC the opportunity to make other changes to the way disputes are handled. Legislation has therefore been introduced to allow taxpayers who have appealed against an HMRC decision to ask for that decision to be reviewed by an independent HMRC review officer. The review officer will be able to uphold the original decision but also has the power to vary or quash it.

Another major change occurs in the way appeals are referred to the Tribunal Service. From 1 April 2009 it is for the appellant, once they have notified their appeal to HMRC, to apply to the tribunal for their appeal to be heard.

Further reading

HMRC's website contains useful information about the new processes: What to do if you disagree with an HMRC decision

Further details about the new tribunal system can be found at the Tribunal Service Website.

The changes to the legislation can be found in Statutory Instrument 2009 No 56. Further minor changes to legislation will be made later relating to the Lands Tribunal.

Payments of Inheritance Tax

Previous newsletters have mentioned the proposed move of the HMRC Inheritance banking facility. This move took effect from 16 March 2009 and all of the banking work previously dealt with by the Inheritance Tax Nottingham office is now being dealt with by the HMRC Banking Team in Cumbernauld.

You may still use the Section K, Nottingham pre-addressed envelope as this will automatically be re-directed to the Banking Team in Cumbernauld. Please note that payments and payslips only should be placed in this envelope.

To coincide with this move and fall in line with other taxes HMRC Inheritance Tax will no longer be issuing receipts as a matter of course. If you make a payment on deposit, you will see this being utilised when you receive the calculation(s) of tax. If the payment is in response to a calculation you have received, the monies will be used to clear that calculation.

HMRC recommends that you make all of your Inheritance Tax payments electronically. Paying electronically:

  • is safe and secure
  • gives you better control over your money
  • provides certainty about when your payment will be received
  • avoids postal delays
  • may lower your bank charges
  • lets you pay at a time convenient to you if you use Internet or telephone banking

If you require confirmation of payment HMRC recommends that you remit the funds to HMRC electronically.

Should you wish to make payment by cheque in response to a calculation issued by HMRC Inheritance Tax, please use the payslip and pre-addressed envelope provided and do not include any other correspondence as this will cause a delay in your payment being banked and your correspondence being dealt with. If making a payment on deposit, please send your payment to:

By Royal Mail:
St Mungo's Road
G70 5WY

By DX:
HM Revenue & Customs
Cumbernauld 2

Changes to bank accounts for Inheritance Tax Payments

From 27 April 2009 the Inheritance Tax bank account details will be changing. HMRC is now using two banks - Citi for Internet and telephone banking payments and Royal Bank of Scotland Group for Bank Giro Credits. You will need these new account details when making a payment to HMRC Inheritance Tax. Details of the new accounts are:

Payments by BACS Direct Credit, Internet, telephone banking or CHAPS

Bank Sort code Account number Account name
Citi 08-32-10 12001136 CIR

Payments using a payslip by Bank Giro or at the Post Office

You should always use an Inheritance Tax payslip sent to you when you registered for an Inheritance Tax reference number, or attached to a calculation of tax. In due course your Inheritance Tax payslip will be printed with the new account details. If you have a payslip with the old account details on it, you do not need to take any action as payments made using both old and new HMRC bank account details will continue to be accepted for the time being.

Treatment of Bradford & Bingley shares for the purposes of Inheritance Tax relief

A Question and Answer item has been published on HMRC website about the treatment of Bradford & Bingley shares for purposes of Inheritance Tax 'loss on sale' relief. You can find this article at: Bradford & Bingley - Inheritance Tax relief Questions and answers (PDF 41K)

Killed or missing in action and the transferable nil-rate band

In connection with the transferable nil-rate band (TNRB), a number of practitioners have sought advice where the first spouse was killed or missing in action and their death was before 12 March 1952. This article aims to help with applying the transferable 'nil-rate band' in these circumstances.

For deaths before 12 March 1952, two separate schemes of relief from Estate Duty for those killed or missing in action were in force. One was a complete exemption and the other a conditional remission. The service rank of the person killed or missing determined which scheme applied.

Complete exemption

  • This applied to all ranks up to and including Corporal (Army and Royal Air Force: a Lance Sergeant was treated as a corporal), Chief Petty Officer (Royal Navy) and Sergeant in the Royal Marines, as well as to Fleet Air Arm ratings.
  • Exemption was not solely confined to death on active service: it simply required that death occurred while the person was serving on Her or His Majesty's service.
  • Where complete exemption applies, the whole of the nil-rate band is transferred for use on the death of the surviving spouse. In these cases, the application for TNRB need contain only the killed or missing person's rank and proof that he or she died in service.

Conditional remission

  • This applied to all service ranks not eligible for complete exemption. Remission also applied on the death of any person drowned or killed (within 12 months) from injuries received as a result of operations of war in the period from 3 September 1939 to 31 March 1948. (The aim of the extension was to provide relief to the estates of civilians killed in the blitz, or drowned following the torpedoing of a ship.)
  • The remission applied only to property passing to 'specified relatives' (surviving spouse, parents and grandparents, children or remoter issue (including adopted and illegitimate children) and siblings).
  • The death must have resulted from wounds inflicted by an enemy, or accident occurring or disease contracted while on active service. For that reason, any application for remission must be supported by a recommendation from the Ministry of Defence.
  • The remission was limited to the first £5,000 of property comprised in the estate for Estate Duty purposes. Where the value of the property passing to specified relatives and/or property passing to other people exceeded £5,000, Estate Duty was charged on the balance at a reduced rate.

Practical issues when claiming TNRB

Q1: How can I tell whether Estate Duty was paid on the death of someone killed or missing in action?

A1: For estates in England or Wales, the Grant will show the amount of any Estate Duty paid when the Grant etc was taken out. If any duty was paid, no TNRB will be available.

Q2: How can I tell whether relief may have been given or be available?

A2: Some of the following factors may suggest that the first spouse died or was missing in action:

  • the surviving spouse had been receiving a War Widow's pension from the Veterans' Agency
  • the existence of campaign medals, a pay book or a telegram announcing the death or loss in action
  • the Grant/Confirmation may refer to the death as being 'in action' or 'on active service'
  • a death certificate, if available, will give the cause of death
  • Regimental History or Veterans' sites on the Internet: entering the name and service rank of the first spouse may often reveal the date and place of death and help to establish that the estate may have been eligible for relief

Q3: How can I obtain a recommendation now to support a claim for remission?

A3: You should approach the Ministry of Defence at:

Service Personnel and Veterans Agency
Joint Casualty and Compassionate Centre (Attn SO3 Deceased Estates)
Innsworth Station

Q4: Why is the date 12 March 1952 important?

A4: A single scheme of complete exemption from Estate Duty to replace the two schemes described above was introduced for anyone killed or missing on active service on or after 12 March 1952. It was very similar to the exemption that applies under Inheritance Tax. A certificate from the Ministry of Defence (address as above) is needed to support a claim for exemption.

Q5: Where can I obtain more information about this topic?

A5: You should telephone Mr Willis on 0115 9742406, the new contact number for Estate Duty cases.

Income Tax and pre-owned assets

The prescribed rate decreased from 6.25 per cent to 4.75 per cent on 1 March 2009. The prescribed rate is the official rate of interest used to calculate the chargeable amount for Income Tax, at the valuation date, where the benefit arises from either chattels or intangible property. The official rate of interest has the meaning given in section 181 of the Income Tax (Earnings and Pensions) Act 2003.

Claim for loss on sale of shares

HMRC Inheritance Tax is currently receiving a lot of claim forms for loss on sale of shares. To enable these claims to be processed as efficiently as possible, please ensure that you have sent a copy of the original valuation of the shares and that when completing the claim form, the shares are listed in the same order as in the valuation.

Updates to the Inheritance Tax Manual

The Inheritance Tax Manual has recently been updated to reflect the change-over from the form IHT200 to the form IHT400. References to the old D forms have also been changed to the new Schedule names. The process maps have not been changed in the manual to show these changes as these will be phased out over the coming months because they are not accessible to all customers. Chapter 24 of the manual (on agricultural relief) (PDF 446K) has been rewritten to reflect HMRC Inheritance Tax's current thinking and practice and is available on the website.


The IHT400 and accompanying schedules has now been in existence since 17 November 2008. This form replaces the IHT200 and the 'D' supplementary pages. You may continue to submit IHT200 Inheritance Tax accounts until 9 June 2009, but from that date the new IHT400 account must be used.

Compliance Checks - Requests for information and documents and pre-arranged visits to customers

The new Compliance Checks came into effect on 1 April 2009 and they apply to, amongst other taxes, both Income Tax and Capital Gains Tax. HMRC has prepared a number of leaflets which are available on the HMRC Internet:

  • Compliance checks - general information leaflet
  • Compliance checks - requests for information and documents leaflet
  • Compliance checks - pre-arranged visits leaflet

Dealing with the tax liability of a deceased person's estate

The tax liability of most death estates during the administration period is straightforward and can be dealt with by the deceased individual's Tax Office. Where this applies, the personal representatives (executors or administrators) of the estate may make a one-off informal payment to the office that handled the deceased's tax affairs to settle the total Income Tax and Capital Gains Tax liability for the whole period of administering the estate. Usually, agreeing the tax liability is straightforward with only minor adjustments needed to tax computations.


But there are exceptions where the estate cannot be dealt with by the deceased's Tax Office. They are as follows:

1. If the deceased was a Lloyd's underwriter, West Yorks Personal Tax Unit will be responsible for the taxation of the estate.

2. If a trust is created either under the terms of the deceased's will, or the rules of intestacy

  • the relevant HMRC Trusts Office that deals with the agent (or the trustee if there is no agent acting for the trustee) will normally be responsible for the tax affairs of the estate
  • if the trust is non-UK resident the office responsible will be HMRC Residency - Non Resident Trusts.

3. If the personal representative is a bank or other financial institution, HMRC Trusts Edinburgh will be responsible for dealing with the estate's tax liability.

4. If the estate is regarded as 'complex', HMRC Trusts Edinburgh will be responsible for dealing with the estate's tax liability.

Estates dealt with by HMRC Trusts Edinburgh

HMRC Trusts Edinburgh has been reviewing the criteria for determining whether or not an estate should be dealt with there. Following this review, changes have been made to clarify the criteria for HMRC staff and customers, and for individuals' Tax Offices dealing with the tax liability of the administration period.

A case is now regarded as 'complex' if one or more of the following applies:

  • the tax liability for the whole of the administration period is in excess of £10,000
  • the estate has a value at the date of death in excess of £2.5m
  • the proceeds of all assets sold by the personal representatives in any one tax year exceed £250,000

If the estate does not fall into any of these three categories but is not straightforward and cannot be dealt with easily under the informal payment procedures referred to above, the deceased's Tax Office may refer the case to HMRC Trusts Edinburgh to decide on who should deal with the administration period liability.

Self Assessment

If the estate is to be dealt with under the informal payment procedures, it will not be necessary to complete a Self Assessment Return. However, an informal payment will not be accepted where a Self Assessment Return has already been issued to the personal representatives. This is because the personal representatives are under an obligation to complete and submit the Return and pay the tax on time. If it is necessary to issue a Self Assessment Trust and Estate Return this will usually be issued only by HMRC Trusts, and not by the deceased's Tax Office. But HMRC Residency - Non Resident Trusts may issue a Trust and Estate Return for non-UK resident trusts. The personal representative will need to give details on the Return of income received and chargeable disposals made by the estate.

Further information

Further information can be found in the Trusts, Settlements and Estates Manual (TSEM) at TSEM7366 onwards.

For guidance that provides basic information to help you understand the Income Tax and Capital Gains Tax liabilities that may arise when someone dies please refer to the guidance at: What to do about tax when someone dies

For further information about Self Assessment and Returns please refer to: Self Assessment

Customers who do not have Internet access can contact the Deceased Estates Helpline on 0131 777 4030 for specialist advice or information about Income Tax and Capital Gains Tax on a deceased person's estate. Opening hours: 8.30 am to 5.00 pm, Monday to Friday; closed Bank Holidays (including Scottish Bank Holidays).

Changes to the 2008-09 Trust and Estate Tax Return

HMRC Trusts recently sent out the 2008-09 Trust and Estate Tax Return. There have been a few amendments to earlier years' versions and the main changes are summarised below:

SA900 - main part of the return

  • Q13 - with the abolition of the savings rate there is no longer any need for boxes 13.9, 13.10, 13.15 and 13.16 and so they have been removed.
  • A new question 13A has been introduced to accommodate settlements which are part settlor-interested and part not settlor-interested and where the normal tax pool arrangements should apply to income arising on that part which is not settlor-interested. The HMRC tax calculation disapplies the usual tax pool computation whenever box 8.12 is ticked (indicating that the settlement is settlor-interested) so the new box 13A.1 provides the means of recording the correct amount. You will need to calculate this amount.

SA904 - Foreign pages

  • There is a new box 4.2B for identifying foreign dividend income which does not qualify for the non-payable 10 per cent tax credit. Finance Act 2008 introduced a non-payable tax credit on foreign dividends in certain circumstances, similar to the tax credit that applies to UK dividends. The HMRC tax calculation automatically applies the tax credit to all dividend income shown in box 4.2. So any dividend income which does not qualify for the new tax credit (broadly speaking where the holding in the foreign company is 10 per cent or more or where the company is an offshore fund) must be shown in box 4.2B.

SA905 - Capital Gains pages

  • The layout of pages TC1 to TC3 has changed. With the abolition of indexation and taper relief, it's no longer necessary to have all the columns that currently appear on pages TC2 and TC3. This has allowed the contents to be reduced to one page, which now appears more logically as the first page, TC1.
  • Box 5.6B has been removed as gains arising to settlor-interested trusts are now chargeable on the trustees.
  • Box 5.6C has similarly been removed as gains, which are subject to a claim to vulnerable beneficiary relief and where the beneficiary is UK resident, are now chargeable on the trustees.
  • Box 5.6D has been removed and box 5.6A is now used for the total amount of taxable gains.
  • The use of box 5.22 has changed as gains arising to settlor-interested trusts are now chargeable on the trustees and it's no longer necessary to provide the settlor's details. Box 5.22 is now used to show that a claim for Entrepreneurs' Relief has been made. The unnumbered monetary value box immediately below box 5.22 is for the amount on which relief is claimed and the actual amount of relief claimed goes in column G on page TC1.
  • The use of box 5.23 has also changed. It remains a tick box but is now used to show if you have submitted a capital gains computation with the return (please note, there is no requirement to submit a computation).

Self Assessment - incorrectly issued 2007-08 late filing penalties

Towards the end of the last tax year HMRC Trusts incorrectly issued a number of late filing penalty notices. HMRC Trusts apologises to everyone who was affected for the inconvenience this caused both you and your clients.

As you may know, there is no automated system for processing Trust and Estate returns which are filed online. Online returns are printed out and the details keyed in manually in the same way as for paper returns. This process includes recording the type of return - paper or online.

Unfortunately in about 3,000 cases HMRC Trusts failed to record the correct type of return. These were cases where the returns were filed online after 31 October but before 31 January. The result was that they were incorrectly recorded as paper returns which had missed the appropriate filing date. Following an automated selection process in February, penalty notices were then issued.

As soon as HMRC Trusts became aware of the mistake, a review of all online returns received after 31 October in the office concerned was begun. HMRC Trusts believes that all the cases affected have been identified - the penalties were cancelled and customers and their agents received a letter to apologise for the mistake. If any have been missed then please contact the Trust office dealing with the case at your earliest convenience.

HMRC Trusts' procedures and staff training needs have been reviewed to make sure the mistake is not repeated in future.

Filing the 2008-09 Trust and Estate Self Assessment return

As the notices to file Trust and Estate returns for 2008-09 have recently been issued, a brief reminder of the filing dates may be helpful.

The date by which you must file the 2008-09 Trust and Estate return depends on the type of return you choose to complete. If you intend to file a paper return, the deadline for doing so is 31 October 2009. On the other hand, if you intend to use the online Self Assessment service, you have until 31 January 2010. If you decide to use the online service, please do not submit a paper return as well. Although this may appear to be a sensible 'belt and braces' approach, it can lead to confusion and was a contributory factor in some of the incorrect penalties which were issued this year.

HMRC does not provide free software for the online version of the Trust and Estate return. So if you are planning to file online, you will need to buy the software from a commercial supplier. You can find a list of suppliers and the packages they provide at: 2008/09 Self Assessment Online - software and online forms