Examination of Witnesses (Questions 40-59)
INLAND REVENUE
15 DECEMBER 2004
Q40 Mr Allan: Do you have to link up
with heritage bodies like English Heritage?
Mr Gray: We have links with all
of the relevant heritage bodies, some of whom act on our behalf
in our policing.
Q41 Mr Allan: What is the Inheritance
Tax situation on an item that was donated to a museum as opposed
to kept in possession and made accessible? I have got a painting
or an historical object that I want to donate; am I still liable
for the tax even though I am donating?
Mr Gray: It depends on its quality
in that since 1998 it will need to be of "pre-eminent quality"
in order to qualify. I think I am right in saying that that is
the key test and whether it is placed in a museum or elsewhere
is a secondary issue.[3]
Q42 Mr Allan: If it were donated to a
museum that was a charity and the museum wanted it, would that
fall under a Charitable Exemption?
Mr Gray: Yes.
Q43 Mr Allan: So it could be either heritage
or charitable?
Mr Gray: Yes.
Q44 Mr Jenkins: Can I take Case 1 to
start with. As I understand Case 1, the person who left the estate
had above the minimum requirement, so a £275,000 house would
be fully taxable and they would be paying £110,000 tax on
that segment of their estate. Because they were allowed to re-establish
the value of this house at £100,000, the tax then due on
it would be £70,000 less because they did not have to pay
tax on the £175,000 amount at 40%. That is how it works out.
Is that right, Mr Gray?
Mr Gray: I think that is right.
I did not quite hear every word of that.
Mr Jenkins: It is the difference between
the actual valuation of £100,000 which they paid £40,000
tax on because this estate was above the threshold and what they
would have paid tax on. The original tax on £275,000 was
£110,000, and the difference between the two is £70,000
which is 40% of the £175,000 revalued.
Mr Allan: Thank you.
Q45 Mr Jenkins: You are welcome.
Mr Gray: Thank you for answering
the question for me.
Q46 Mr Jenkins: I am not a tax inspector.
When you read this report you must have been fairly pleased, were
you not?
Mr Gray: I was reasonably pleased,
yes.
Q47 Mr Jenkins: I thought it was an excellent
report.
Mr Gray: There was good progress
on nearly all the recommendations.
Q48 Mr Jenkins: Very good progress, especially
when I look at the backlog on Page 30, paragraph 3.7. You have
dropped from 2,000 cases over three years old down to 882 and
from 200 over 10 years old down to 83. That is tremendous progress
in the amount of time we have been tackling this. Is that progress
down to the fact that you have got to being more efficient, or
that you have got more staff working on this backlog of cases,
or are we just looking at a laxer regime?
Mr Gray: More efficient and more
effective at the way we work across the different parts of the
Inland Revenue. The number of staff engaged in this area of tax
has been broadly unchanged at around 400 over the period. The
caseload has gone up by something like two-thirds and the flow
of new cases has gone up by something like two-thirds and we have
managed to reduce the backlog, so I think it is more efficient.
Q49 Mr Jenkins: More efficient, excellent.
Mr Gray: I think we have joined
up different bits of the organisation more effectively than previously.
Q50 Mr Jenkins: So what further progress
are you seeking to reduce the number of outstanding cases beyond
that level we have got now?
Mr Gray: We want to go as far
we can. One thing we are currently considering is we have used
the three-year benchmark as one of the key things to monitor.
We are considering, for example, and we have not taken a firm
view on this yet, whether to set ourselves a tougher target, and
we ought now to be taking two years as a benchmark above which
we regard this as a number that we would feel rather embarrassed
about.
Q51 Mr Jenkins: That is excellent. Have
you established how much tax we have lost because of the long
time it has taken to finalise these tax liabilities, where assets
have disappeared or are untraceable, or if it is impossible to
assess the value?
Mr Gray: We have not got a precise
estimate because there is a very difficult balance here, Mr Jenkins.
The reason that the great majority of these cases is taking longer
is not that they just happen to be at the bottom of the pile,
it is that there is a very close correlation with the degree of
complexity involved in the cases so we are tackling a very big
balance. If we seek to settle the issue very quickly we may under-estimate
the true liability. On the other hand, there is the risk to which
you point but we are trying to strike this balance in a way which
gets the case sorted out as quickly as we reasonably can, securing
the right yield. I would not accept that there is a big leakage
here simply because cases are taking longer.
Q52 Mr Jenkins: Would you not have a
feeling that the reason why an individual wished to prolong this
case is that he is seeking tax advantage? Somewhere along the
line they are trying to pay less tax?
Mr Gray: I think they are looking
to minimise their liability through prolonging the discussions
with us. There is, though, a countervailing point that the longer
it carries on once the liability is settled the greater is the
interest payment, so there is an offsetting system.
Q53 Mr Jenkins: Do you have any power,
for instance, to use directions to instruct them that they must
give you information more quickly?
Mr Gray: Yes.
Q54 Mr Jenkins: Do you use that power?
Mr Gray: Yes we do. I think some
figures were brought out in the Report that if we feel we are
not getting appropriate help and co-operation we give directions
and if those directions are not followed then we have a penalty
regime that follows it. I think I am right in saying that we have
virtually no cases in which after having made a direction we continue
to get a lack of co-operation, so we use that sanction with some
effect.
Q55 Mr Jenkins: They tend to be the high
value cases?
Mr Gray: Yes, by and large.
Q56 Mr Jenkins: People like visitors
to our country who have enjoyed certain tax advantages, if they
happen to die we find difficulty tracing their assets?
Mr Gray: I think that is a possibility
but I think there is a general correlation here between the more
difficult, more complex and probably higher value cases.
Q57 Mr Jenkins: What about the average,
the cases of people who are just over the borderline? If you have
got a situation where you have got an estimate for the valuation
of a property, can we accept the valuation of this property or
do we require a fresh valuation with the cost falling back on
the person? How would you value the property?
Mr Gray: It depends, as Jonathan
was saying just now. We seek to give guidance and advice on how
people should secure property valuations but we are not dogmatic
about precisely the basis on which it should be done. We reserve
the right in looking at a case if we feel the valuation may not
be a fair one to ask for a new one.
Q58 Mr Jenkins: Of course but could we
assume, for instance, that you would accept a newspaper page of
properties of a similar nature and location showing what the market
price is? Would you guide us down that road rather than undertaking
a full valuation?
Mr Leigh-Pemberton: We certainly
do not require people to send us professional valuations as a
matter of course. If they have taken a reasonable approach and
our colleagues in the Valuation Office confirm that it is a sensible
market value, it is accepted. 70% of the cases we deal with are
settled within six months and everything is over, so the simple
cases you are talking about we deal with as fast as we can because
we know the bereaved want certainty.
Q59 Mr Jenkins: That is simple cases.
Have you thought about an electronic service for those cases?
What are the pros and cons for providing such a service?
Mr Gray: We certainly have thought
about an electronic service and we are actively discussing that
with others, following up one of the other recommendations from
NAO. The pros here are the normal advantages of electronic transmission
which we have sought to exploit very heavily in other areas of
the direct tax system. The down side and the main difficulty in
the IHT case is the need for submission of supporting documents,
so although the forms which Mr Trickett was referring to are available
electronically and people can quickly print them off the internet
and send that in, when there are additional documents required,
to do a full electronic transmission we are on to issues of scanning
of documents, so unlike a number of other areas of tax where it
is simply getting our form completed and doing that electronically,
the additional documents are the potential difficulty. We are
actively considering how we best overcome some of those obstacles
and think about offering that service.
3 Note by witness: Gifts and bequests of any
assets to museums etc described in Schedule 3 to the IHTA 1984
are exempt from IHT. Back
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