HMRC Denies New IHT Crackdown

by Robert Lee, Tax-News.com, London

21 September 2007

The UK's HM Revenue and Customs has denied reports in the country's media that it is embarking on a tough new crackdown on suspected inheritance tax evaders in a quest to extract more revenue from bereaved families.

Reports that HMRC would soon begin targeting the tax affairs of the recently deceased emerged after the department published a guidance note which revealed that it would be paying "close attention" to lifetime transfers, which involve the transfer of property to family members before a person dies.

Under current rules, inheritance tax can be avoided if property is gifted more than seven years prior to the donor's death. Where the gift is a house, the person giving the house would be expected to pay rent, at a commercial rate, for the period they continued to live in it, and the receiver of the rent would then be subject to income tax on the sums received. It is thought that HMRC will put more resources into examining these arrangements to uncover cases where assets, income and gifts have not been properly declared and accounted for, allowing the taxman the right to levy fines and penalties against those who have not obeyed the rules.

According to the Times, HMRC said that there was now “an increased likelihood that we will ask for further information or seek explanation of what has occurred”, where information provided by those administering the estate is unclear or incomplete.

Tax experts warn that bereaved families can expect little sympathy from HMRC, as it adopts a more hardline approach to the way that it deals with the tax affairs of the deceased.

"In the past, when a private individual completed an inheritance tax return, HMRC was generally gentle with them because they were not experts. It sounds as if now the gloves will be off," George Bull, of accountants Baker Tilly was quoted as observing by the Daily Telegraph.

HMRC has refuted the reports, stating that the bereaved "are not being targeted".

"There has been no change to the inheritance tax rules. We want to help administrators to get their accounts right first time, saving time and helping them to avoid any potential issues at what will already be a difficult time," the department stated.

HMRC also dismissed claims that its scrutiny of inheritance tax was in an effort to wring out yet more revenue for the government.

The reports have coincided with claims by the opposition Conservative Party that the number of families paying inheritance tax bills has risen 72% in the last five years, while IHT revenues have doubled to GBP3.3 billion since the Labour government came to power in 1997, as a result of the fact that the threshold at which IHT becomes payable - which currently is GBP300,000 - has failed to keep pace with soaring house prices over the past ten years.

"Not content with this, HMRC are now going to go through old records to see if they can squeeze yet more tax out of bereaved families," alleged Philip Hammond, the shadow chief secretary to the Treasury.

"This is one more example of the Revenue tightening the screws on the taxpayer to feed Gordon Brown's insatiable appetite for cash," he added.

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