HMRC Revises Inheritance Tax Policy

by Amanda Banks, Tax-News.com, London

27 August 2010

HM Revenue and Customs has amended its compliance policy concerning inheritance tax after finding that existing guidelines were not working well for neither the taxpayer nor the tax man.

An HMRC brief explained that the department will now only consider opening an enquiry where domicile could be an issue, or where there is a significant risk of loss of UK tax. The significance of the risk will be assessed by HMRC using a wide range of factors. The factors will depend very much on the individual case but will include, for example: a review of the information available to HMRC about the individual on HMRC databases; and whether there is a significant amount of tax (all taxes and duties not just inheritance tax) at risk.

HMRC does not consider it appropriate to state an amount of tax that would be considered 'significant,' as the amount of tax at stake is only one factor. However, HMRC will take into account the potential costs involved in pursuing an enquiry, and also those of potential litigation should the enquiry not result in agreement between HMRC and the individual; clearly such costs can be substantial.

Where HMRC does open an inheritance tax enquiry in any of these cases, it will keep the factors in view and may stop the enquiry at any stage if it considers the continuation of the enquiry is not cost effective. The outcome of such an enquiry may be that HMRC does not consider it appropriate to make a determination of the inheritance tax.

Nevertheless, the HMRC brief warns that enquiries into domicile involve a detailed inquiry into all of the relevant facts and HMRC is likely to require considerable personal information and extensive documentary evidence about the taxpayer and the taxpayer's close family.

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