Select Committee on Public Accounts Twenty-Ninth Report


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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Prepared 12 July 2005