.png)
.png)
The August edition of the HMRC trusts and estates newsletter has been published:
Inheritance tax treatment of compensation payments
HMRC Trusts and Estates have confirmed the treatment of compensation payments for inheritance tax purposes on the basis it can cause some difficulties for taxpayers and their agents, especially when compensation is received after the date of death.
The August edition of the HMRC trusts and estates newsletter has been published:
Inheritance tax treatment of compensation payments
HMRC Trusts and Estates have confirmed the treatment of compensation payments for inheritance tax purposes on the basis it can cause some difficulties for taxpayers and their agents, especially when compensation is received after the date of death.
The right to pursue a claim for compensation is an item of property and therefore an asset of the estate. The open market value of the right at the date of death depends on several factors, but is fundamentally down to what was known, or capable of being known, at the date of death about:
- the amount of compensation that might be reasonably anticipated based on the information available;
- the likelihood of the claim being successful;
- the likely costs that would be expected to be incurred in obtaining a successful outcome; and
- the time delay between the date of death and the date when the compensation might reasonably be expected to be made.
- Where personal representatives are aware of a potential claim at the date of death, they should record the existence of the claim on form IHT400 and provide as much information as they can. They should include a reasoned estimate of the open market value of the right to pursue the compensation where they are able to do so.
Telling HMRC about a trust
HMRC Trusts and Estates are receiving a number 41G forms where the trust is not expected to receive income or make chargeable capital gains. This can lead to the unnecessary issue of the SA900 trust and estate tax return.
HMRC should be informed about the creation of a trust only if it is expected to receive income or make chargeable capital gains from the sale of assets within the next tax year.
If an existing trust starts receiving income or making chargeable gains, HMRC should be notified by 5 October following the end of the tax year.
New inheritance tax forms for Scottish estates
New versions of the following forms have been published: C1 confirmation inventory; C2 inventory continued; C3(2006) – notes to help you fill in form C1 confirmation inventory; C5(2006) return of estate information; C5(OUK)(2006) return of estate information (where person was domiciled abroad and their UK assets are cash and/or quoted stocks and shares, with a value less than £150,000); and C5(SE)(2006) – information about small estates.
