BR Report 2019

12 13 Market Update / IHT statistics Market Update / IHT statistics THE INTERIM FIGURES: IHT receipts for April 2018 to March 2019 were 3.1% higher than the same period in the previous year 1 (driven in part by impending changes to probate fees for larger estates. See page 36 for more details). The Office for Budget Responsibility (OBR) revised down its IHT projections in March 2019. Previously, IHT receipts were forecast to rise to £6.4 billion in the 2022/23 tax year, but this was dropped to £5.9 billion. The OBR stated that this was to reflect weaker equity and house prices, although the long term trend is still upwards, with the March 2019 projection for 2023/24 set at £6.3 billion. So, even after taking account of possible Brexit impacts, growth in estate values will continue to fuel growth in IHT contributions to HMRC. IHT investigations rise Recent research revealed that there was a 5% rise in HMRC investigations into estates for underpayment of IHT in 2017/18. The number of estates investigated was 5,400 estates, up from 5,100 in the 2016/17 tax year. That’s one in four (24%) of the total estates liable for IHT. Given that the IHT tax gap (the amount of tax HMRC expects to be paid, in theory, and what is actually paid) is at £600 million a year 2 , perhaps this is not surprising. In percentage terms, this is relatively high in comparison with other taxes and not only reflects non- compliance and avoidance, but also errors. The areas that HMRC are likely to look into when they investigate an IHT return include: Whether the figures submitted accurately reflect market value – particularly in respect of residential property; Whether any claims for business or agricultural reliefs are valid; Whether any assets have been omitted deliberately or due to lack of reasonable care. While the majority of investigations related to what HMRC judges to be undervaluation of property, it’s worth both advisers and their clients keeping a regular check on the ongoing qualification of their BR tax planning. As a retrospective relief, you won’t know if your BR planning has succeeded until after your client dies. Professional fund managers specialising in BR- qualifying investments generally have an excellent record of selecting and monitoring companies to ensure that BR qualification is achieved. But, it is still a good idea to ask a BR investment manager about any HMRC tax investigations, or refused BR claims it has been subject to. £6.3 bn OBR’s March 2019 projection for IHT receipts in 2023/24 SOURCE: HMRC TAX & NIC RECEIPTS, MONTHLY AND ANNUAL HISTORICAL RECORD, FEBRUARY 2019 £0.6bn £0.5bn £0.4bn £0.3bn £0.2bn £0.1bn Apr Jul Nov May Aug Dec Jun Oct Sep Jan Feb Mar 2014-15 2015-16 2016-17 2017-18 2018-19 MONTHLY AND ANNUAL IHT RECEIPTS QUICK REMINDER: What could lead to BR claims being rejected after death? The investee company is: • not carried on for commercial gain • subject to a contract for sale or being wound up • “wholly or mainly” dealing in securities, stocks or shares, land or buildings or in the making or holding of investments • “wholly or mainly” generating investment income such as residential or commercial property letting, property dealing and running serviced offices • listed on a recognised exchange (not AIM). “HMRC are increasingly challenging the value of estates as investigating IHT returns becomes considerably more lucrative for raking in extra tax.” — MARK GIDDENS, UHY HACKER Mar-2018 Mar-2019 16/17 19/20 17/18 20/21 22/23 18/19 21/22 23/24 0 1 2 £ billion 3 4 5 6 7 OBR IHT RECEIPTS PROJECTIONS SOURCE: ECONOMIC AND FISCAL OUTLOOK, OFFICE FOR BUDGET RESPONSIBILITY, MARCH 2019