The new processes have been introduced as a result of HMRC moving advance IHT payments from Nottingham to Accounts Office, Shipley. This move has necessitated the need for bank-approved payslip. The new processes will also improve security as regards registering IHT processes before an account is delivered.
IHT 200 and New IHT Reference
Where someone dies and it is expected that inheritance tax will be due, it is necessary to deliver a full account on the form ‘IHT 200’ to HMRC.
From 5 November 2007, an IHT reference number must be obtained before submitting IHT 200. The IHT reference number should be written in the top right-hand corner of the IHT 200. The new IHT reference is not needed if the IHT 200 is to be delivered before 5 November 2007.
HMRC recommend that the IHT reference is applied for as soon as possible, but in any event, at least three weeks before the expected delivery date of the IHT 200. It is necessary to apply for the form in writing, either online via the HMRC website or by post using form D21.
The online option will be available on the HMRC website from 22 October. The IHT reference can be requested by using the `do it online’ link on the far side of the IHT home page (www.hmrc.gov.uk/cto/iht.htm). If the online option is used, an email acknowledgment will be sent confirming that HMRC have received the IHT reference request.
If the postal route is taken, form D21 is required. This can either be downloaded from the HMRC website or ordered by telephone from the forms orderline (0845 30 20 900; option1).
An IHT reference will then be allocated to the estate and HMRC will send details of the reference, together with a payslip and a pre-addressed envelope, by post. HMRC have stated that they will aim to respond to requests for an IHT reference within 5 days where the request is made on-line, and within 15 days where the request is made by post.
The new IHT reference is not required if there is no inheritance tax to pay, but the form IHT 200 is required. In this situation, the completed IHT 200 should be sent to HMRC in the normal way.
Due Date for Payment of Inheritance Tax
Inheritance tax is due six months after the end of the month in which the person died. This means that if someone dies on 2 October 2007, any inheritance tax in respect of their estate is due on 30th April 2008. If the tax is not paid by that date, interest is charged on the unpaid tax.
However, it is not necessary to pay all the tax that is due in order to apply for a grant, although a minimum amount of tax must be paid. This is the tax that is due on assets included in section F of the IHT 200. This is inheritance tax on assets where the option to pay in instalments in not available and includes items such as cash, bank and building society accounts, premium bonds, quoted shares, dividends and interest, personal assets and household goods.
The inheritance tax due on items included within section G of the IHT 200 can be paid in instalments. The instalment payment option applies predominantly to land and buildings, business interests and assets, and certain shareholdings. The tax in respect of such assets may either be paid in a lump sum before the six month due date in order to avoid interest, or in ten instalments.
Where payment is made by instalment, normally interest is payable on the tax that remains unpaid at the time each instalment falls due. However, where tax is paid by instalments in respect of some businesses, certain quoted shares or land that qualifies for agricultural relief, some interest relief may be available such that interest is only charged as each instalment becomes due.
It is important to note that if any of the assets on which tax is being paid by instalments is sold, HMRC should be notified. The instalment payment option comes to an end if the associated asset is sold and any remaining tax is due immediately.
Inheritance tax can be paid in various ways:
Bank giro credit
National Savings Investment owned by the deceased.
Each payment method is examined further below.
The processes governing the initial payment of inheritance tax by cheque are changing from 5 November 2007. From that date, a bank approved payslip carrying an IHT reference must be sent with the cheque. As noted above, the payslip is sent out together with the IHT reference and a pre-addressed envelope once the IHT reference has been requested either online or by post.
When making the payment by cheque, the payslip should be completed and put with the cheque (and nothing else) in the pre-addressed envelope sent out by the HMRC with the reference and payslip. The cheque should not be folded, nor should the cheque and payslip be stapled together.
Cheques should be made payable to `Her Majesty’s Revenue & Customs’
The payment and the IHT 200 should not be sent together. The cheque and payment need to be sent to the HMRC cashiers at Nottingham, whereas the IHT and supporting papers should be sent to either Nottingham or Edinburgh, depending on where the application for probate or confirmation is to be made.
Payment of inheritance tax can also be made by electronic transfer using CHAPS or BACS payments. When making payments in this way, details should be given of the full name of the deceased, transferor or settlement, where appropriate, the date of death or settlement and the capital taxes reference number, if known.
Bank Giro Credit
Inheritance tax can also be paid via bank giro credit. If this option is chosen, a pre-printed giro slip is required. This should be obtained from HMRC and can be requested by telephone (0115 974 2463).
It is also possible to pay some, or all of the tax and interest that is due prior to application for a grant by using National Savings owned by the deceased. However, where this route is taken, it can take up to four weeks for the payment to be processed.
Transferring Assets to the Crown
Perhaps not an option for the average person, but all or part of an inheritance tax bill and associated interest can be settled by transferring national heritage property to the Crown. The rules are complicated and property cannot be accepted in lieu of payment of inheritance tax before a grant of representation can be taken out. Further details of meeting inheritance tax liabilities in the way can be obtained direct from HMRC.
It is important that the correct processes are followed to ensure that payments are allocated to the account promptly, and that interest in not incurred unnecessarily. Further details on the procedures governing the delivery of an inheritance tax account and the payment of the tax are available on the inheritance tax pages of the HMRC website (www.hmrc.gov.uk/cto/iht.htm).