I have recently had to handle my first probate as executor for someone whose estate was liable to inheritance tax. Despite having all the knowledge of what is involved, I wasn’t prepared for the actual amount of work.
HMRC currently uses a series of forms when you apply for probate. There is the main form IHT400 and then for every extra area that is applicable to the individual’s estate there is another separate form. In this case there was a total of ten forms. Of course, each form requires the key information to be entered and so you end up entering several bits of data ten times which is a huge waste of time. In addition the answers to a question in one form will impact an answer in another form. Of course none of the forms calculate the sums as you go, this is all manual.
Chancellor Rachel Reeves did set aside money in the last budget to pay for HMRC to move these forms online which should help cut out duplication of work, but it might be a long time before this is implemented.
Almost all our clients have estates that will require this sort of return at some point. My reflection from the experience is that this data needs to be gathered earlier. It is incredibly hard for the next generation to plough through years of bank records to answer all the questions that are asked.
As an example, are you aware that your executor will have to itemise all gifts made in the 14 years prior to your death? How will they go about accessing these records? If you made some of those gifts as exempt gifts from surplus income, have you recorded your income and expenditure for that tax year?
It can only be by recording this data in anticipation of these questions being asked that your executor will have any chance of doing this accurately. In the worst-case scenario HMRC might query the return and then your executor will have to go through 14 years’ worth of bank statements to back everything up.
You might think that an executor will use best endeavours, and the detail doesn’t much matter, but the executor is legally liable for the tax and will therefore have to go through and disclose everything in detail or risk being pursued for tax by HMRC at a later date.
At Altor we have developed a system to record gifts made, to whom, when, how much and what type of gift it is. It also captures income and expenditure in the years when surplus income gifts are made. It allows for all relevant IHT reliefs and gives a final tax liability.
We have found that capturing this information with clients not only protects the next generation but the sums involved are really prompting clients to start some serious inheritance tax planning.
Our advisers are dealing with inheritance tax for their clients from our office in Hook and across the UK.