Mr Dog's Estate: It is in the IHT "Black hole"

John_Pierpoint

It is now 10 weeks since I filled in Mr Dog's Inheritance Tax forms, calculated his tax, and requested on-line a tax payer's reference number.

Today I have managed to trace the progress. In spite of undertaking to sell Mr Dog's house, (and reclaim the IHT on the probate value loss?:eek:) it seems I am in the clutches of VOA[Valuation Office Agency] according to the tax man's own manual:

Generally, we need to follow up receipt of the VOA ( IHTM23002) report by contacting the taxpayer fairly quickly because

• we have given a public commitment to this effect in the November 1999 IHT Newsletter. This explained that, as the VOA does not always contact the taxpayer about an offered valuation, we would, in consequence, contact the taxpayer to apprise them of the position.
• feedback from subsequent external surveys has indicated that there is often a ‘black hole’ in taxpayers knowledge of the state of progress at this stage – the combination of VOA and our practice (of not automatically telling them in every case that we have referred to the VOA in first instance). Although procedural changes have been made to reduce the potential period of non-contact (in PC&S , referrals are made by FACET/Registry staff before the account is formally examined), the sooner that contact is made the better.

The precise timing of contact may vary, depending on the circumstances of the case.

Can anyone give me an explanation of what this means: (in PC&S , referrals are made by FACET/Registry staff before the account is formally examined) ?

SeniorSam

John_Pierpoint wrote: »

It is now 10 weeks since I filled in Mr Dog's Inheritance Tax forms, calculated his tax, and requested on-line a tax payer's reference number.

Today I have managed to trace the progress. In spite of undertaking to sell Mr Dog's house, (and reclaim the IHT on the probate value loss?:eek:) it seems I am in the clutches of VOA[Valuation Office Agency] according to the tax man's own manual:



Generally, we need to follow up receipt of the VOA ( IHTM23002) report by contacting the taxpayer fairly quickly because

• we have given a public commitment to this effect in the November 1999 IHT Newsletter. This explained that, as the VOA does not always contact the taxpayer about an offered valuation, we would, in consequence, contact the taxpayer to apprise them of the position.
• feedback from subsequent external surveys has indicated that there is often a ‘black hole’ in taxpayers knowledge of the state of progress at this stage – the combination of VOA and our practice (of not automatically telling them in every case that we have referred to the VOA in first instance). Although procedural changes have been made to reduce the potential period of non-contact (in PC&S , referrals are made by FACET/Registry staff before the account is formally examined), the sooner that contact is made the better.

The precise timing of contact may vary, depending on the circumstances of the case.

Can anyone give me an explanation of what this means: (in PC&S , referrals are made by FACET/Registry staff before the account is formally examined) ?

Hi John............

Am I right in assuming that your dog has inherited within the last two years, since if so, it may be that the Will making the dog the beneficiary can be changed by deed of variation.

Provided all beneficiaries agree ( we will assumne that the dog would want to save as much tax as possible as this is a right) then the Will could create a Discretionary Trust on the death into which the gift could be allocated.

Trustees could be appointed to administer the Trust estate and I would presume that someone was named to have the responsibility of maintaining the dog and is nominated in the Will.

When I say 'allocated' this could be past on to someone who gives an I.O.U. to the Trust to repay that amount to the trust from their own estate on death and possibly charged on that persons estae or property.

What I would be concerned about is who drew up the Will? If this was a solicitor, who has legal responsibility to see that the Will is drawn up to the best advantage of the Settlor and beneficiaries, then perhaps these vital clauses were missed and should not have been.

Obviously if the deceased had willed more than the nil rate band allowance of £312,000 last year or £325,000 this tax year, then the excess would be subject to inheritance tax at 40%

If there are remaindermen that would inherit the fund after the death of the dod, then that is another problem which can be discussed, but it sound as though this needs looking into more closely and may save tax.

Hope this helps

Sam

John_Pierpoint

Hi SeniorSam,
There is not a real dog involved in this estate; it was just a little conceit on my part when my childless uncle died last autumn.

I did not want to quote the real names of the beneficiaries all 11 of them, so I simplified the will and its participants by pretending they were a family of canines.
Perhaps I should have called him Mr Black and made a family of colours?
(But in Reservoir Dogs it was the guys who stole the wealth that had the funny names!)

Best wishes and thanks for your thoughts.
John.

Original posting is here:
http://forums.moneysavingexpert.com/showthread.html?t=1164505

SeniorSam wrote: »

Hi John............

Am I right in assuming that your dog has inherited within the last two years, since if so, it may be that the Will making the dog the beneficiary can be changed by deed of variation.

Provided all beneficiaries agree ( we will assumne that the dog would want to save as much tax as possible as this is a right) then the Will could create a Discretionary Trust on the death into which the gift could be allocated.

Trustees could be appointed to administer the Trust estate and I would presume that someone was named to have the responsibility of maintaining the dog and is nominated in the Will.

When I say 'allocated' this could be past on to someone who gives an I.O.U. to the Trust to repay that amount to the trust from their own estate on death and possibly charged on that persons estae or property.

What I would be concerned about is who drew up the Will? If this was a solicitor, who has legal responsibility to see that the Will is drawn up to the best advantage of the Settlor and beneficiaries, then perhaps these vital clauses were missed and should not have been.

Obviously if the deceased had willed more than the nil rate band allowance of £312,000 last year or £325,000 this tax year, then the excess would be subject to inheritance tax at 40%

If there are remaindermen that would inherit the fund after the death of the dod, then that is another problem which can be discussed, but it sound as though this needs looking into more closely and may save tax.

Hope this helps

Sam

sloughflint

John_Pierpoint wrote: »

Hi SeniorSam,
There is not a real dog involved in this estate;

Phew.

SeniorSam wrote: »

Provided all beneficiaries agree ( we will assumne that the dog would want to save as much tax as possible as this is a right) then the Will could create a Discretionary Trust on the death into which the gift could be allocated.

It's only the beneficiaries giving up a benefit that need to agree to a DOV.

What a great idea though to have a legal document with a doggy paw print for signature.

John_Pierpoint

jimmo wrote: »

For PC&S see here.
http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM32091.htm
For FACET see here.
http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM07000.htm#4
I know very little of IHT but for Capital Gains an abridged version of the process is as follows:
If the individual is not already in Self Assessment a UTR (Unique Taxpayer Reference) is allocated
The necessary Return is issued and completed by the taxpayer, sorry, customer.
The Return is logged in.
The Return is processed
Processed means that the income and Capital Gains details, exactly as declared, are recorded on the SA system. And that system automatically issues the appropriate demands at the appropriate time.
The Return is then risk assessed. Part of that process involves asking the District Valuer for a “not-negotiated” valuation.
In effect, HMRC reports to the District Valuer that the Return includes a value of the property on the specified date, and asks if that valuation is reasonable.
At this point, the Return has been processed and the liability has been Self Assessed but a formal Enquiry into the Return has not been opened. In those circumstances neither HMRC nor the District Valuer can ask the taxpayer anything.
If the District Valuer accepts the valuation used by the taxpayer and that was the sole risk identified by HMRC that is the end of the matter and no Enquiry is made into the Return. End of story.
If the District Valuer cannot accept the valuation used by the taxpayer he reports his opinion of the valuation to the risk assessor at HMRC.
If the Risk Assessor at HMRC considers that the difference between the valuations justifies an Enquiry into the Return the papers are passed to an Enquiry Officer and a formal Enquiry is opened.
After the Enquiry has been formally opened the Enquiry Officer can ask the District Valuer to start negotiations with the taxpayer or his agent. Only then can the District Valuer contact the taxpayer or agent.
Applying that to Mr Dog’s case PC&S and FACET appear to the “routine” side of the operation creating the files and basic records and I can easily understand the concept that they could issue the request for a “not-negotiated” valuation.
However if you have made an IHT Return which shows that Mr Dog’s estate has IHT to pay then I cannot imagine any circumstances where a reference to the District Valuer would prevent the setting up of a file, allocating a reference number and the issuing of a demand for the IHT you have “self assessed”.
I am convinced in my own mind that the principles of Self Assessment apply equally to IHT but I cannot prove it.
If when you sell the house it turns out that there is no IHT liability then any threats of interest and penalties will be empty threats but if IHT is due and it is paid late there certainly could be charges.
If I were you I would be concerned about a 10 week delay in getting the basics done. As there is a house involved it is perfectly obvious that the IHT office will be referring to the District Valuer but that is another matter.

Many thanks Jimmo,

Your insights, into how the IHT system now works, is most useful.
I have been here before a dozen years ago, in the case of the ancient aunt: that one was interesting, in that I was responsible for paying the lions share of AA's modest IHT bill. AA lived in my grandmother's house, having an "interest in possession" (better known as a "life interest") in the house under the terms of grand mother's will.
AA had a modest nest egg of her own (circa 25K). I was executor/trustee of grandmother's estate but not of AA's.

This created a situation where the Capital Taxes officer and myself were sitting on our hands, waiting for AA's executor and sole beneficiary to raise her modest amount of IHT, so things could progress.
I was happy sitting on my hands and watching for a year as the value zoomed up from 250K to 300K, while I spent the summer painting the outside of the house to give it a bit of "curb appeal".

With the Dog house, the situation is reversed, property prices are falling, while HMRC (or is it the probate office?) are faffing about. There is a perfectly good (given a new roof, a knocked down chimney breast or two, a bit of remodelling, renovation and a good fumigation:rotfl:) Victorian house, just waiting for an ambitious young couple to get stuck in and jump a rung or two on the "property ladder". I've ticked the box saying I'm going to sell it on the IHT400 forms.
So why does the tax payer funded HMRC need to waste money on checking with the "District Valuer". A quick look at Zoopla and a note to the Land Registry to slap a charge on the property forbidding transfer of owner ship at completion without the OK of the tax man, should do the trick.. (Jobs for the boy's?)

Any suggestions as how I should chase up progress?
I could 'phone the Capital Taxes office at Nottingham but all I have is a tax payer's reference number? (Here we go listen to lists of menu options - press button this press button that and go round in a circle trying to find intelligent life?).
OR
I could have a go at the central probate registry in London to see if the hold-up is there? (This time it is a case of almost no system rather than too much subdivision of labour - all I have is a hand scribbled invitation to the swearing - which took three weeks to bodge together - followed by a fortnight's wait - followed by a deadly silence for a month)
.:mad::rolleyes:
Which head of the hydra of "joined up government" would you approach?

John.

BTW There is interest charged on IHT still not paid 6 months after the death. Like a fool I did the calculation and paid the sum up front, in the mistaken hope that I would avoid some of the faffing about delays, only to discover that on the day I signed the cheque, the interest rate on unpaid IHT was cut to 0 %.
(I feel like some fool who turned down a student loan because of not wanting to be in debt !)

John_Pierpoint

sloughflint wrote: »

Phew.


It's only the beneficiaries giving up a benefit that need to agree to a DOV.

What a great idea though to have a legal document with a doggy paw print for signature.

Thanks for this information, I was already thinking along these lines.
The Uncle Dog will in the link above in this thread, is partially intestate. This means that nobody can be sure what uncle really intended BUT the effect of the intestacy rules is amongst the "cousins", generation one (given that uncle is generation zero) get a slug of extra cash BUT generation two get nothing extra (nor does anyone related to his late wife).
I'm thinking of jumping a generation. by putting something into trust for the third generation. Traditionally this would be an accumulation & maintenance trust that could come to an end when the third generation reached an age between 18 and 25.
Unfortunately the "Dear Leader", when he was chancellor, changed the rules to create a capital tax charge, if the trust runs after the age of 18.
So now we have the choice of pay the tax or give the kid the money, just in time to buy a hairy motorbike and die an early death?

Any thoughts on the trust front?

SeniorSam

John_Pierpoint wrote: »

Thanks for this information, I was already thinking along these lines.
The Uncle Dog will in the link above in this thread, is partially intestate. This means that nobody can be sure what uncle really intended BUT the effect of the intestacy rules is amongst the "cousins", generation one (given that uncle is generation zero) get a slug of extra cash BUT generation two get nothing extra (nor does anyone related to his late wife).
I'm thinking of jumping a generation. by putting something into trust for the third generation. Traditionally this would be an accumulation & maintenance trust that could come to an end when the third generation reached an age between 18 and 25.
Unfortunately the "Dear Leader", when he was chancellor, changed the rules to create a capital tax charge, if the trust runs after the age of 18.
So now we have the choice of pay the tax or give the kid the money, just in time to buy a hairy motorbike and die an early death?

Any thoughts on the trust front?

Hi Again John .......

OK No Dog!!

Jumping a generation is a good process if the capital is not needed by the first, but it would be a Discretionary Trust now, not an Interest in Possession Trust.

The Trustees of the Trust could administer the trust as they see fit for the benfit of the initial beneficiaries, or indeed other beneficiaries if they see fit.. others can be added as required if appropriate.

With a Discretionary Trust, there is no age that the beneficiaries 'have to' receive the capital. It is 'DISCRETIONARY'. ........... saves the motorbike syndrome!!!

Many of the wealthy families in this land have these sorts of Trust and if required, they can go on for up to 80 years. Distribution can be by encashment or ASSIGNMENT,..... which then entitles the beneficiary to maintain their own trust and not actually bring it into THEIR estate, if for instance they may wish to pass it on again to say their children.

One point to be carefuul on is the amount in the Trust growing to beyond the nil rate band allowance when the value is assessed ever 10 years, as a tax of 6% would be levied. Easily solved by more than one trust being set up initially rather than just one for all beneficiaries.

Hope this helps you and the dog..

Sam

John_Pierpoint

Does this mean that "I" (ie there could be a trust run by people whose judgement I admire) could be running a trust up to the value of the nil rate band, without having to pay the regular capital tax levy?
Still have to pay 40% income tax though? (that the kid(s) could reclaim ?)

Is this a method of "dying in advance" rather than postponing the generational IHT levy until the second death of husband/wife partnership?

SeniorSam

John_Pierpoint wrote: »

Does this mean that "I" (ie there could be a trust run by people whose judgement I admire) could be running a trust up to the value of the nil rate band, without having to pay the regular capital tax levy?
Still have to pay 40% income tax though? (that the kid(s) could reclaim ?)

Is this a method of "dying in advance" rather than postponing the generational IHT levy until the second death of husband/wife partnership?

Hi John.............. I get the opinion that you know more than you intimate, but here goes.

If you don't trust the judgement of yourself and family, then perhaps you should appoint the Dog but don't try and wag it's tail!

You don't have to pay tax at all if you 'borrow from the trust' and repay at a later date after death to reduce the value of your estate, or before. If you pay interest on that loan the Trust would have to pay 40%, ........ so don't pay interest. Loans could also be made to beneficiaries if the Dog agrees.

Hope this helps

Sam

John_Pierpoint

Hi Sam,
I did try to get my head round the concept of trusts in 2007 but then Gordon B went and changed the rules.
Also by accident my father created an interest in possession trust in 1967 by dropping dead intestate at the age of 50 ish. Long term that bit of tax planning worked out very well, though it was a nightmare of debt at the time. Thank goodness I managed to talk my late mother out of the solicitor's "good" advice about what we call Deeds of Variation these days.

It is still OK is it to lend money at zero interest? I have in the back of my mind that the taxman does not like that trick of passing money down generations?

I was thinking of helping my children so that their infant children's trust(s) end up owning part of the house their parents are living in?
Would something like that be tax efficient?

John.

I was once accused by my daughter's solicitor of "acting behind the curtain" - I believe a reference to the role of the mother when China had an under age little Emperor - the most notorious one, decorated the park in Beijing with a pleasure junk carved out of solid marble so she and her friends could enjoy a tea ceremony aboard.
I could advise, but if she thought I had been able to control a self willed teenager - she was barking up the wrong tree.

John_Pierpoint

John_Pierpoint wrote: »

It is now 10 weeks since I filled in Mr Dog's Inheritance Tax forms, calculated his tax, and requested on-line a tax payer's reference number.

Yesterday I spent the majority of the day pressing "last number redial" time and time again. I got several different messages including "this number is temporarily out of order".
At about 15:45 I eventually got through to the Central Probate Registry, only to be told that the probate certificate was in the post.

Can I give a bit of advice to the civil service of this hopeless government.
We need to get this country working efficiently in this recession.
Sending out the two documents required in this multi month tax raising exercise by second class snail mail, is a very silly pence wise pound foolish saving.
Each one has added 4 extra days to the time that a large 6 figure sum has been stuck in "limbo".