A family has escaped paying an inheritance tax (IHT) bill of nearly £600,000, due to administrative errors made by HMRC, as reported by The Express.
The case involved a complex tax-saving scheme used by Jennifer Elizabeth Fleet before her death in 2011, which artificially reduced the value of her estate to avoid IHT.
The scheme worked by creating an artificial debt, bringing the estate’s value below the £325,000 threshold at which the 40% “death tax” is levied. In October 2011, Mrs. Fleet’s sons and executors filed an inheritance tax form declaring her assets were worth £1.8 million but claimed liabilities of £1.6 million, including a £1.4 million debt guarantee. This manoeuvre effectively reduced the estate’s value to below the IHT threshold.
Five years later, an HMRC officer challenged the validity of the debt, arguing that the estate had been undervalued. Despite this, Mrs. Fleet’s advisers applied for a certificate of discharge in 2018, which would eliminate the tax liability. Initially, one HMRC official insisted that the IHT charge should apply, but another issued a certificate confirming no tax was due.
In 2019, the officer in charge assessed the estate as liable for inheritance tax on £1.4 million, resulting in a bill of approximately £588,700. The family appealed the decision, and while the tax tribunal ruled that the scheme used was not valid for reducing the estate’s value, it also concluded that HMRC’s mishandling of the case meant the tax could not be collected. Claire Roberts of Moore Kingston Smith, an accountancy firm, commented:
“This decision highlights a growing pattern of HMRC making fundamental errors. In this case, £500,000 of tax was lost simply due to a lack of communication within HMRC.”
An HMRC spokesperson acknowledged the ruling and expressed approval that the tribunal agreed the tax-avoidance scheme did not reduce inheritance tax liabilities.
