Correcting HMRC Inheritance Tax errors: £100,000 saved and professional fees recovered

Case study overview

• Issue: Errors in HMRC calculations resulted in additional demands for £250,000 of Inheritance Tax

Total savings: £100,000 reduction in HMRC’s overall demand, comprising the cancellation of £70,000 of late payment interest and additional tax reduced by £30,000

• Strategy: Specialist technical review of HMRC’s calculations and strategic use of the complaints process
• Outcome: 100 per cent of late payment interest and professional fees recovered, accompanied by compensation paid by HMRC for distress and inconvenience

How did the issue arise?

The executors of a large estate approached inTAX for guidance on an escalating dispute with HMRC over the Inheritance Tax (IHT) payable on the estate.

The executors had completed and submitted the IHT400, requesting that HMRC calculate the tax due. HMRC subsequently issued its calculation and the executors distributed the estate accordingly.

It later transpired that there were significant technical errors in the initial calculation, despite all the relevant information being submitted.

After the deceased’s property had been sold, HMRC revisited the position and demanded an additional £250,000 of IHT, alongside approximately £70,000 of late payment interest.

As the executors had distributed the funds in line with the original calculation, the additional liability of around £320,000 put them under significant financial pressure. This is when they sought specialist advice from inTAX.

How did inTAX approach the issue?

The estate’s position had become particularly difficult because the executors had relied on calculations originally provided by HMRC.

Questions were raised over whether the revised position was accurate, but the executors were unable to resolve matters through direct correspondence with HMRC.

inTAX conducted a detailed technical review of the estate using the information previously provided to HMRC. Importantly, no new evidence or documentation was required from the executors.

Our review identified three significant errors within HMRC’s calculations:

• Failed Potentially Exempt Transfers (PETs): HMRC had failed to correctly account for the value of failed PETs made during the seven years before death. This formed the largest component of the revised liability.
• Incorrect application of annual exemptions: HMRC had incorrectly applied the available annual gift exemption when calculating the value of chargeable lifetime transfers. In line with HMRC’s Charter commitments, we argued HMRC should have clarified before adopting a position that increased the liability.
• Incorrect Residence Nil Rate Band tapering: HMRC had incorrectly calculated the tapering of the Residence Nil Rate Band despite all relevant information being clearly disclosed within the submitted forms.

Challenging HMRC’s position

Having recalculated the correct IHT liability, inTAX prepared detailed technical representations and a formal complaint to HMRC.

We recalculated the estate’s true IHT position, escalated HMRC’s delays through the complaints process, challenged its calculations and pursued recovery of professional fees incurred as a result of the errors. At each juncture of the challenge, we managed all correspondence with HMRC.

When HMRC failed to acknowledge the complaint after four months, the matter was escalated to a member of HMRC’s senior leadership team, leading to progress being made.

What was the outcome?

As a result of our challenge, HMRC ultimately accepted significant elements of the complaint and revised its position.

They reduced the additional IHT demand from £250,000 to £220,000, cancelling the entire £70,000 of late payment interest in the process. This lowered the overall liability by approximately £100,000.

HMRC also paid compensation for distress and inconvenience and reimbursed a proportion of the professional fees.

However, we were unsatisfied that HMRC had not accepted full responsibility for the consequences of its errors, and we pursued the matter further through a Tier 2 complaint.

Following a further detailed submission, the Tier 2 complaint was upheld and HMRC agreed to reimburse 100 per cent of the client’s professional fees.

The executors were able to pay the correct amount of IHT due to HMRC’s concessions, while recovering the costs incurred in correcting the mistakes.

Why is this case significant?

IHT disputes are not always about whether a taxpayer has completed a return incorrectly. Sometimes the issue lies within HMRC’s own calculations and decision-making.

This case demonstrates the importance of independently reviewing HMRC’s conclusions, particularly where significant tax charges are involved.

By combining technical IHT expertise with detailed knowledge of HMRC’s complaints process, inTAX rectified the errors and reduced the overall liability by £100,000.

All professional fees were reimbursed and the estate paid only the legal amount of tax due, without any penalties or interest.

For executors, solicitors and advisers dealing with IHT disputes, specialist scrutiny of HMRC’s calculations can make a substantial financial difference.

While HMRC may have provided the original calculation, it should not always be accepted uncritically, especially where large IHT charges are involved.

You can get in touch with our friendly and experienced team on: 0203 675 8122 or email info@intaxltd.com.

inTAX is a specialist tax disputes firm. We deal with disclosures, investigations, and tax enquiries of all descriptions, including COP9, fraud investigations, VAT fraud, tax avoidance, let property disclosures and tribunal appeals. However, we don’t just deal with the serious end of tax investigations; we are also happy to handle smaller enquiries, disputes and problems that can be equally as worrying for our clients.