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Estate registration deadline

Death in 2019; wasn't expected to cross £10k tax threshold but now has. Penalties for late reg?

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Person died in late 2019.  A commercial property owned by the person continued to be rented out by the estate.  It was thought that the administration would be wrapped up fairly quickly and as the income tax would be less than £10,000 it could be dealt with under the informal procedures.  However, it has been prolonged and now the overall tax of the estate will exceed £10,000.

Client is registering the estate but this means a tax return would have been due for 2019/20 and both this and registration are now effetively late.

Is the estate liable to any penalties in this situation and is there any appeals process?


Replies (6)

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By Wanderer
04th Oct 2021 14:30

Has the Estate been wound up now?

If so it might be worth trying the informal procedures. If it's made easy for HMRC then they might just let it slip through. If not then you haven't lost much.

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Replying to Wanderer:
04th Oct 2021 14:43

It hasn't yet but close to being wound up. I believe it's just been registered :(

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Replying to SDGREEN:
By Wanderer
04th Oct 2021 17:52

Ah! Don't think I would have bothered registering it, would have just tried to finalise as I outlined above.

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By richard thomas
04th Oct 2021 16:01

Assuming the client is the executor, then they have become liable for a penalty for failure to notify liability for the tax year 2019-20. And yes of course you can appeal against any penalty assessment that HMRC may make.

There are however 3 possible reasons why you should not have to pay anything.

1. The maximum penalty where the failure is not deliberate is 30% of the tax for the year that is unpaid on 31/1/21. But the minimum for an unprompted disclosure made within 12 months of 31/1/21 (as here) is 0%. A reduction to 0% will be due if the client tells HMRC about the failure, gives HMRC reasonable help in quantifying the tax unpaid and allows HMRC access to records (if they ask).

2. In any event no liability exists if the client has a reasonable excuse for the failure. If I had been hearing the client's appeal on those grounds in this case as a judge of the FTT I would accept that there was such an excuse, if the following statements are true and evidence was given to that effect.

One is that it could not have been anticipated in October 2020 (the deadline for notifying) that the tax for the entire period of administration would exceed £10k and that it was reasonable at that time for the executors to think that the administration period would end before the tax exceeded £10k.

The second is that once it became clear that the tax would exceed £10k then HMRC were notified of liability within a reasonable time from the date it so became clear.

3. If that fails on the second leg, as it might, then you also have the opportunity to argue that there were special circumstances in your client's case. These might be that the conditions for using the informal procedures can only be seen to be met once the admin period has ended and so the implication is that this "wait and see" aspect makes a failure to notify liability in a year before the admin period ends and where the tax has not exceeded £10k incompatible with HMRC's published information about the informal procedures.

But I would do what you can to convince HMRC that a 0% penalty is due. Take the initiative and write to them asking if they intend to impose a penalty and explaining why you think that would be pointless as the penalty should be 0%, and in that letter set out what happened and what the liability is in detail and offer access to the records.

The law on this is in Schedule 41 Finance Act 2008 and HMRC Guidance in their Compliance Handbook available from their website.

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By ireallyshouldknowthisbut
04th Oct 2021 17:51

We deal with a number of estates for a firm of solicitors and have gone over the limit a number of times. I think the highest was £12k

Our approach has been to simply not engage with the correct process.

We write a letter, send with a cheque payment and then rebuff further enquiries with statements such as "the correct sum was paid by the correct date". We also fall back on "there is no budget to undertake further enquiries of this nature, this is our final correspondence on the matter and we consider the matter closed".

HMRC quickly lose interest so long as the correct amount of tax is paid.

The second you start registering things late etc you are going to get into penalties and requiring appeals and a whole drawn out lot of nonsense for no purpose. The executors are paying you to get the tax worked out and paid. End of. No medals for doing it by the book I know it sounds cowboy, but as explained above you can probably wriggle on the penalties anyhow if you needed to so the downside risk is low vs the certainty of extra work.

Being pragmatic is increasingly important in tax administration as the processes are made ever more complex and difficult to comply with.

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Replying to ireallyshouldknowthisbut:
13th Oct 2021 11:36

Good to know, @ireallyshouldknowthisbut
Sorry to jump on the OP, do you just make the cheque out to HM Revenue & Customs? or do you use some other reference?

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