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IHTM36023 | Late accounts: penalties chargeable

From HM Revenue & Customs · Inheritance Tax Manual

Where an account is delivered outside the time limits (IHTM10803) laid down in the legislation the following penalties may be chargeable. All of the penalties are subject to the defence of reasonable excuse (IHTM36061).

Section 245

  1. Where the due date for delivery of the account expired between 27 July 1999 and 22 January 2005

  • an initial penalty of £100 for late delivery, IHTA84/s.245(2)(a)

  • a further penalty of £100 if the account is delivered 6 months or more after the time limit for delivery, IHTA84/s.(3) and (4)

  1. Where the due date for delivery of the account expires after 22 January 2005

  • an initial penalty of £100 for late delivery

  • a further penalty of £100 if the account is delivered between six months and twelve months after the time limit for delivery,

But if the actual tax liability is less than the penalty chargeable under the above provisions then the maximum penalty is limited to the amount of the tax that is due, IHTA84/s.245(5). This also means that if, subsequent to the account being delivered, the tax that is due is reduced to nil, any late account penalty that has been paid undersections 245(2)(a) and (3) should be repaid.

The further penalty for accounts that are at least 6 months late will not apply if, during the six months following the time limit for delivering an account we have begun proceedings to have the failure to deliver an account declared (IHTM36081).

Subsection 245(4A) – for accounts delivered more than 12 months late

Where the accountable persons failure to deliver an account continues beyond the period of 12 months after the due date for delivery specified in s.216, and where there would have been a liability to tax shown in the account, FA2004 introduced a new penalty of up to £3,000, IHTA2004/s.245(4A). This applies where the due date for delivery expires after 22 July 2004 and is in addition to the penalties under section 245(2)(a) and (3).

Penalties under section 245(4A) should be calculated as follows:

Accounts submitted voluntarily

Where the account is submitted voluntarily the amount of the penalty relates only to the degree of lateness and the amount of tax involved –

  • For tax less than £5,000:

The penalty is £200 (under s.245(2)(a) and (3)) plus £10 for each month (or part month) beyond the period of 12 months after the due date for delivery, up to a maximum of £3,000 (under s.245(4A))

  • For tax between £5,000 and £50,000:

The penalty is £200 (under s.245(2)(a) and (3)) plus £50 for each month (or part month) beyond the period of 12 months after the due date for delivery, up to a maximum of £3,000 (under s.245(4A))

  • For tax between £50,000 and £100,000:

The penalty is £200 (under s.245(2)(a) and (3)) plus £100 for each month (or part month) beyond the period of 12 months after the due date for delivery, up to a maximum of £3,000 (under s.245(4A))

  • For tax between £100,000 and £1m:

The penalty is £200 (under s.245(2)(a) and (3)) plus £200 for each month (or part month) beyond the period of 12 months after the due date for delivery, up to a maximum of £3,000 (under s.245(4A)).

  • For tax over £1m:

The penalty is £200 (under s.245(2)(a) and (3)) plus £400 for each month (or part month) beyond the period of 12 months after the due date for delivery, up to a maximum of £3,000 (under s.245(4A)).

For example, with regard to a death in May 2015 for which the IHT400 would be due on 31/5/16.

  • If the tax on the estate was £4,000 and the account was delivered on 20/9/2017 (more than 15 months and less than 16 months late) the penalty would be £240 (200 + [4 x 10]);

  • If the tax on the estate was £49,000 and the account was delivered on 08/10/2019 (more than 40 and less than 41 months late) the penalty would be £1,650 (200 + [29 x 50]);

  • if the tax on the estate was £60,000 and the account was delivered on 15/6/17 (i.e more than 12 and less than 13 months late) the penalty would be £300 (200 + 100);

  • if the tax were £150,000 and the account was delivered on 15/8/17 (more than 14 and less than 15 months late) the penalty would be £800 (200 + [3 x 200]);

  • if the tax were £2m and the account was delivered 15/1/18 (more than 19 and less than 20 months late) the penalty would be £3,200 (200 + [8 x 400] = 3,400, capped at 3,200).

Accounts submitted following enquiries

Where the account has been submitted following our enquiries the penalty is -

£1,000 plus £200 (under section 245(2)(a) and (3)) plus either £10, £50, £100, £200 or £400 for each month (or part month) as shown above,

= up to a maximum total of £3,200.

So, following the above example of a death in May 2015, if the tax on the estate was £4,000 and the account was delivered on 15/6/17 the penalty would be £1,210 (1,000 + 200 + 10).

Unlike penalties under section 245(2)(a) and (3), penalties under section 245(4A) are not capped by the amount of tax on the account.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Summary (for IHT400s)

  • Death before 1/7/98 - (delivery due before 27/7/99) = no penalty

  • Death between 1/7/98 and 30/6/03 (delivery due between 27/7/99 and 22/7/04) - 0 – 6 months lateup to £100 = Penalty cannot exceed tax - over 6 months lateup to £200 = Penalty cannot exceed tax

  • Death between 1/7/03 and 31/12/03 (delivery due between 23/7/04 and 22/1/05)0 – 6 months lateup to £100 = Penalty cannot exceed tax - 6 – 12 months lateup to £200 = Penalty cannot exceed tax

- Over 12 months lateup to £3,200*

  • Death on or after 1/1/04 - (delivery due after 22/1/05) 0 – 6 months late £100 = Penalty cannot exceed tax - 6 – 12 months late £200 = Penalty cannot exceed tax

- Over 12 months lateup to £3,200

*Remember this penalty may also apply where the time limit for delivery expires on or before 22 July 2004, if the failure to deliver an account continues beyond the period of 12 months from that date.