Press Notice No. 29 of Session 2004-05, dated 12 July 2005
TWENTY-NINTH REPORT: INHERITANCE TAX (HC 174)
Mr Edward Leigh MP, Chairman of the Committee of Public Accounts in the previous Parliament, said today:
"Given the increase in recent years in the number of people affected by inheritance tax, I am glad that the Revenue has made progress in easing the burden on relatives trying to sort out the tax affairs of people who have died. This is another example of this Committee's recommendations acting as a spur to improvements. But I am concerned that people who are grieving for a loved one are still being confronted with paperwork which is overly complicated. More can be done to make it easier for those who are recently bereaved to carry out the necessary business with the taxman.
"It is also important that the Revenue comes down firmly on those who cheat by knowingly giving false information on inheritance tax forms. Until now, it has been too lenient in the penalties it imposes."
Mr Leigh was speaking as the Committee published its 29th Report of the 2004-05 Session, which examined the Inland Revenue on securing the right amount of tax on time, making the tax procedures easier for representatives, and the operation of the heritage exemption.
The Committee found that the Revenue received 67,500 Inheritance Tax returns in 2003-04, launched compliance enquiries into 3,600 cases and secured an additional tax yield of £126 million. This represented a two-thirds increase in caseload since 1998-99, though managed with a similar level of staffing. The Revenue has also settled cases more quickly and reduced the number of long outstanding cases.
Since the Committee last reported, the Revenue has made greater use of information held by different parts of its organisation to inform its compliance investigations, and improved procedures for identifying undeclared gifts and tackling other compliance risks.
The Revenue cannot give a firm estimate of how much tax is lost from non-compliance because, unlike the United States Internal Revenue Service, it has not measured the Inheritance Tax 'tax gap' - the difference between the theoretical tax payable and the actual amount collected. It has now started to deal with this, drawing on the US experience. To help tackle artificial avoidance - part of the tax gap - the Revenue has monitored such schemes and challenged them through litigation and legislation, including a recently introduced tax charge on the benefits that continue to be derived from assets given away.
The Revenue can apply penalties for negligent inaccuracies in tax returns, but used this sanction on only 100 cases in 2003-04. It has recently secured its first successful prosecution for Inheritance Tax fraud. In applying penalties, the Revenue has abated the maximum available penalty according to the gravity and nature of the offence, including whether errors were voluntarily disclosed and the extent of cooperation. The Revenue also applied significant abatements, however, even when it discovered errors or omissions.
Making the tax procedures easier for representatives
While many people use solicitors or other professionals to deal with their Inheritance Tax affairs, 30% of tax returns are submitted by personal representatives. To help make the Inheritance Tax system easier to use, the Revenue has set up a joint probate/Inheritance Tax helpline, improved its website guidance and introduced a shorter, easier to complete, form for the majority of estates. But the main Inheritance Tax form remains difficult to use, and there is uncertainty among personal representatives about what is required in valuing property.
The heritage exemption
Assets of sufficient heritage importance can be exempt from Inheritance Tax, provided they are conserved and reasonable public access is provided. Following the Committee's 1999 Report, the Revenue and heritage agencies have worked more closely in checking that exemption conditions are being met, and there has been less slippage in the programme of inspections. The Revenue has also publicised exempt assets and public access arrangements, and extended its register of heritage assets to include chattels as well as properties.
Since 1998 all new exemptions for heritage chattels require some open access for the public, without a prior appointment. The Revenue has also used its powers to renegotiate existing agreements with 16 of the 44 owners with the most significant collections, to provide open access to 1,900 chattels.
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