Conclusions and recommendations
1. The Revenue has no measure of the gap between
the Inheritance Tax theoretically payable and the actual amount
collected, but it
now intends to draw on the experience of the US Internal Revenue
Service to estimate the tax gap on undeclared or under-valued
assets. It should also analyse data it collects on the composition
of estates to identify cases for enquiry where there is an unusual
mix of assets.
2. The 2004 Finance Act introduced new
disclosure obligations on those marketing some avoidance schemes,
but so far the regulations do not apply to Inheritance Tax schemes.
The Revenue currently monitors artificial schemes and seeks to
block them through litigation or changes in legislation.
The Revenue should consider extending
the regulations on disclosure to Inheritance Tax avoidance schemes.
3. The average penalty levied after applying
abatements has been only 7% of the maximum available, rising to
12% in cases where the Revenue discovered the negligence.
The 1999 Finance Act increased the maximum penalties for fraud
or negligence in Inheritance Tax. The Revenue should also restrict
abatements of penalties, not only to encourage representatives
to disclose errors voluntarily, but also to deter them from being
negligent in submitting inaccurate returns in the first place.
4. In recent years the Revenue has processed
Inheritance Tax cases more quickly, and reduced the backlogs of
long-outstanding cases, but it still has nearly 900 cases over
three years old and 83 over ten years old.
The Revenue has invariably secured the co-operation of representatives
once it has issued directions to obtain information, but since
1999 it has only used these powers on 82 occasions. The Revenue
should set targets to reduce further the number of long-running
cases, making full use of its powers to issue directions to secure
the information it needs to conclude enquiries.
5. Given the difficult circumstances in which
people have to deal with Inheritance Tax, the Revenue should make
it as easy as possible for representatives to meet their obligations.
The Revenue has improved the tax returns, but the main form is
still difficult for the lay representative to complete. The Revenue
could simplify the language and the layout. In redesigning the
forms, it consulted Inheritance Tax professionals. It should make
forms easier to complete, also taking into account the views of
lay representatives.
6. The Revenue should co-operate with other
departments to develop a co-ordinated bereavement website, providing
all the information and advice people need when dealing with the
death of a relative. Such a website could
help people to deal with the various authorities they need to
contact when someone has died. It might include an electronic
service for filing Inheritance Tax and probate returns.
7. As well as responding to individual enquiries,
the Revenue should make it easier for people to obtain guidance
on Inheritance Tax from its website and leaflets.
More information might be provided on the acceptability or otherwise
of the more common types of avoidance schemes, and attention could
be drawn to websites that representatives can use to value properties
without the expense of professional valuations. There are also
uncertainties about how properties funded by Islamic mortgages
should be valued for Inheritance Tax purposes and the Revenue
should consider issuing general advice on their tax treatment.
8. The requirement to pay Inheritance Tax
before probate can be obtained is an important safeguard, but
it has been a problem for representatives who have had to obtain
a loan to pay the tax. The Revenue has
provided a facility to pay by instalment and arrangements to access
funds held in an estate's bank accounts. But it does not have
information on how many estates still have insufficient liquid
assets for representatives to pay the tax and secure probate.
It should review the extent of the problem.
9. The Revenue has so far renegotiated better
public access with 16 of the 44 owners with the more significant
collections of exempt chattels, but it could do more.
The 1998 Finance Act introduced a higher quality standard for
exempting chattels and a requirement for some degree of open access
for the public. Now that the Special Commissioners have upheld
the principle that it could review existing agreements, the Revenue
should use its powers to negotiate better public access to all
significant collections of tax-exempt heritage chattels.
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