IHT Forms - not submitted

GenieTDR71

Hi there,

I am a trustee of a small discretionary trust that was set up when my father passed away. We have just distributed funds to beneficiaries and I have completed an IHT 100C form. My concern is that when completing this form I realised that we should have potentially completed forms for a previous distribution pre the ten year anniversary and for the ten year anniversary. I have calculated that there is no tax to pay for any of the events but am worried that if I send forms for the older items that I will generate a penalty for each. The trust was established in 2008 and I was genuinely unaware about the reporting requirements as I thought any settlements were excepted as the value of all put into the trust was 80% of the NRB at the time of the distribution in 2015 and the 10 year anniversary in 2018. However I now realise the the actual percentage was 80.4%. As there is no tax to pay do I need to send in these retrospective forms and if I do will I have to pay a penalty? When I spoke to the HMRC helpline the adviser without providing their name or anything 
in writing said don't bother as nothing would be done with the forms as there is no tax payable


     

poseidon1

Insufficient information.

Specifically,

1) What was the value  of assets settled in the trust from inception in 2008? You indicate value of assets in 2015 was 80% of NRB. Was the original 2008 settlement of funds  a life time gift or on death of the settlor?  What was the nature of the asset gifted? If lifetime gift, had the settlor made any other gifts within 7 years of making the 2008 settlement?

3) What was the value and nature of the trust distribution  in 2015?

4) What was the value of the trust fund at the 10th Anniversary and did any of that value comprise real estate?  Incidentally, when valuing the trust fund at the 10th anniversary, did you add back in the value of assets distributed in the prior 10 year period ( this is a strict requirement)?

5) Aside from IHT compliance, were the trust funds liable to annual income tax and CGT compliance, and if any income was generated, was any of this accumulated  ( capitalised ) over the trust period?

Submitting the  IHT 100c  ( in isolation)  for the most recent capital distribution gives HMRC no history or context to judge whether the trust has been fully compliant from inception. In this regard please note  point 4) above and  whether the 80% valuation threshold had been breached as a result of failing to add back the 2015 distribution in arriving at the 10 year reporting threshold.

GenieTDR71

Hi Poseidon1,

Thanks for your response - to answer your questions:
1) The value of assets settled on inception was £261300, the settlement was on the death of the settlor, assets  were cash and a debt over a residential property with no interest chargeable, Settlor had made no gifts in previous 7 years or into other trusts
2) All income (interest and very small amount of dividends) taxed and distributed to beneficiaries. Tax returns completed and tax paid for each tax year while income generated- agreed HMRC no need for returns thereafter
3) £48000 - all cash in the trust was distributed leaving only the non interest bearing debt
4) Value on 10 year anniversary £213300, no real estate just debt over property, yes added back in the 2015 distribution of £48000 into the calculation so total value of estate £261300/£325000 =80.4%  
5) Yes subject to both but only income tax. All income generated was distributed 
What do you think? I have read that penalties are capped at the level of tax payable so if no tax payable - no penalties payable?

poseidon1

GenieTDR71 said:

Hi Poseidon1,

Thanks for your response - to answer your questions:
1) The value of assets settled on inception was £261300, the settlement was on the death of the settlor, assets  were cash and a debt over a residential property with no interest chargeable, Settlor had made no gifts in previous 7 years or into other trusts
2) All income (interest and very small amount of dividends) taxed and distributed to beneficiaries. Tax returns completed and tax paid for each tax year while income generated- agreed HMRC no need for returns thereafter
3) £48000 - all cash in the trust was distributed leaving only the non interest bearing debt
4) Value on 10 year anniversary £213300, no real estate just debt over property, yes added back in the 2015 distribution of £48000 into the calculation so total value of estate £261300/£325000 =80.4%  
5) Yes subject to both but only income tax. All income generated was distributed 
What do you think? I have read that penalties are capped at the level of tax payable so if no tax payable - no penalties payable?

OK given this detailed roadmap of the conduct of the trust from inception, what I would be inclined to do would be a detailed covering letter to accompany the IHT 100c for the recent distribution.

That letter should set out all the capital events and figures you gave above ( so a full backstory). Apologise to them for your slight miscalculation of 80.4% and ask if notwithstanding this, whether HMRC happy to treat the trust as an excepted settlement at inception and its 10th anniversary.

Strictly speaking there is a £100 penalty for failing to submit the original  IHT 100 at trust inception and IHT 100d in 2018, within the stated deadlines but  as you say  this will be waived on the back of there being no actual IHT arising on each event.

You say all cash distributed in 2015, therefore with regard to the more recent distribution was this the £261,300 property debt?  Was it repaid and the cash distributed thereby bringing the trust to an end? If so no doubt you will be indicating this on the IHT 100c and requesting ( in your letter) that HMRC confirm no IHT liabilities at anytime since 2008 and that they will be happy to confirm closure of their files on the matter.

Hopefully making these complete disclosures ( albeit some what late in the day) should mean an eventual clean exit from the trust.