The First-tier Tribunal (FTT) has found that a repayment of Income Tax due to a taxpayer who had died during the relevant tax year formed part of her estate for Inheritance Tax (IHT) purposes.
The taxpayer had died on 18 December 2020. Her son, who was the executor of her estate, took the view that an Income Tax repayment due in respect of the 2020/21 tax year did not form part of the estate. After HM Revenue and Customs issued a notice of determination under Section 221 of the Inheritance Tax Act 1984, including the repayment in the value of the estate, he appealed to the FTT.
He argued that, immediately before her death, the taxpayer had had no enforceable right or entitlement to any Income Tax repayment for the 2020/21 tax year. Accordingly, there was no ‘property’ within the meaning of Section 272 of the Act to which she was beneficially entitled at that time. For such a right to be enforceable, the amount must be capable of being established at the time of death. Alternatively, he contended that if the repayment constituted property, it had no ascertainable market value immediately before her death and so no value should be attributed to it under Section 160 of the Act.
The FTT agreed that she had had no right to the repayment before her death. The repayment had essentially been caused by the personal allowance, which PAYE deductions anticipated being spread over the whole of the tax year, being fully available for the shorter period from 6 April to 18 December 2020 as a result of her death. However, her income and the Income Tax payable in the 2020/21 tax year, and thus the amount of the repayment, were knowable at the time of death. Although there was no right to repayment until 31 January 2022, the fact that a debt is only payable at a future date does not prevent it from being property at an earlier date. The taxpayer’s death caused her estate to be entitled to the repayment, and therefore the operation of Section 171 of the Act caused it to form part of the estate.
The FTT noted that, when the taxpayer died, it was possible to assign the right to a repayment of tax. As the repayment was property that formed part of the estate under Section 171, the relevant valuation point was the open market value at the time of death, which would be approximately equal to the amount of the repayment. The appeal was dismissed.
