I was the executor for the estate of a friend who died in May 2021 aged 90. Part of my role was to sell his house.
Because of advice received over the phone from HM Revenue and Customs, I have ended up paying exorbitant interest that I estimate at about £10,000 on the inheritance tax owed, when I shouldn’t have paid any.
I haven’t even had a confirmation that the total of £145,000 I handed over to the Revenue by October last year has been safely received. I have contacted them several times to try and resolve this but have not got a satisfactory response. I am worried and feel I am being ignored. S.H., Stourbridge, West Midlands
Because of advice received over the phone from HM Revenue and Customs, I have ended up paying exorbitant interest, says a reader. Is there anything I can do?
Sally Hamilton replies: You were keen to do everything by the book and pay all the inheritance tax due within the rules. This tax is charged at 40 per cent on an individual’s estate that exceeds the inheritance allowance of £325,000.
The rules stipulate that the tax bill must be paid by the end of the sixth month after the death, if interest charges are to be avoided.
Property transactions can be glacially slow and if it takes more than six months to find a buyer the payment deadline can be missed and interest starts to mount.
Since you didn’t know how long the sale would take you decided to pay the tax on your friend’s estate in instalments. This arrangement, set up by completing an IHT400 form, allows payments to be staggered over ten years — although interest is incurred over the whole period.
The arrangement can be handy for someone who has inherited a property, wants to live in it and doesn’t have any other source of funds to meet the full tax bill immediately but can afford the instalments.
To your surprise, your friend’s house sold more rapidly than expected — with the transaction completed about four weeks before the six-month grace period was up.
You alerted HMRC in November 2021, shortly after the sale went through, and told them you would like to pay the full inheritance tax bill of about £135,000 straight away to avoid interest.
This was where things went wrong, as the woman on the helpline told you not to worry and to continue paying the annual instalments. You thought this odd, as you had the full funds available, but you went along with it.
Over the next couple of years, you paid instalments but worryingly never received a receipt nor statement of how much was left to pay. You feared you’d fallen victim to a scam.
When you phoned the Revenue again to express your concerns, you finally got someone who said you should never have been paying in instalments, as the property had been sold. You requested a statement but all you received was a letter mentioning the current interest charge of 7.75 per cent.
In desperation you decided just to pay off what you estimated was the balance of the bill on October 25 last year, making the total paid about £145,000. Again, no confirmation.
By January you were at the end of your tether, and contacted me.
I asked the Revenue to investigate what had gone wrong and to swiftly put things right. Some days later it confirmed all payments had been received but added the worrying comment: ‘All appropriate interest has been paid on the estate.’ This was concerning as no interest was due. I asked the tax people to look again.
This time a spokesman came back to confirm the Revenue’s error over the advice you received, and that your instalment plan should have been cancelled before it even started and interest should not have been paid.
It took more prodding by me but finally last week you got back the overpaid interest, plus interest on it — a total of £10,111 — along with an apology and a £150 goodwill gesture.
As a thank you for my intervention, you kindly donated £100 to the Marfan Trust, a charity I support.