Bad HMRC advice cost me £10,000 on an inheritance tax bill: SALLY SORTS IT

I was the executor of the estate of a friend who died in May 2021 at the age of 90. Part of my role was to sell his house.

Thanks to advice received over the phone from HM Revenue and Customs, I ended up paying exorbitant interest which I estimate to be around £10,000 on inheritance tax due, when I should not have paid any.

I haven’t even had confirmation that the total of £145,000 I handed over to the taxman in October last year was received. I have contacted them several times to try to resolve this issue but have not received a satisfactory response. I’m worried and feel like I’m being ignored. SH, Stourbridge, West Midlands

Sally Hamilton responds: You were keen to do everything according to the rules and pay all the inheritance taxes due in the rules. This tax is levied at 40 per cent on an individual’s estate which exceeds the inheritance allowance of £325,000.

The rules state that the tax bill must be paid no later than the end of the sixth month after death, if interest charges are to be avoided.

Real estate transactions can be extremely slow and if it takes more than six months to find a buyer, the payment deadline may be missed and interest begins to mount.

Since you didn’t know how long the sale would take, you decided to pay your friend’s estate tax in installments. This system, set up by completing an IHT400 form, allows payments to be spread over ten years, even if interest is accrued over the entire period.

This arrangement can be practical for someone who has inherited a property, wishes to live there and has no other source of funds to immediately pay the entire tax bill, but can pay the installments.

To your surprise, your friend’s house sold faster than expected – with the transaction finalized about four weeks before the end of the six-month grace period.

You alerted HMRC in November 2021, shortly after the sale, and told them you wanted to pay the entire inheritance tax bill of around £135,000 straight away to avoid interest.

This is where things went wrong, because the woman on the helpline told you not to worry and to continue paying the annuities. You found this strange, as you had all the funds available, but you accepted it.

Over the next two years, you paid installments but, unfortunately, you never received a receipt or statement showing how much you still owed. You were worried that you might be the victim of a scam.

When you called the IRS again to express your concerns, you finally found someone who told you that you should never have paid in installments since the property had been sold. You requested a statement, but only received a letter stating the current interest rate of 7.75 percent.

In desperation, you decided to pay what you estimated was the balance of the bill as of October 25 last year, a total of around £145,000. Again, no confirmation.

In January, you were at your wit’s end and contacted me.

I have asked the Ministry of Finance to investigate what went wrong and remedy the situation quickly. A few days later he confirmed that all payments had been received, but added the ominous comment: “All appropriate interest has been paid on the estate.” This was concerning because no interest was owed. I asked the tax authorities to re-examine the situation.

This time a spokesperson came back to confirm Revenue’s error regarding the advice you received, and that your installment plan should have been canceled before it even started and interest should not have been charged be paid.

It took more effort, but finally last week you got back the overpaid plus interest – a total of £10,111 – along with an apology and a goodwill gesture of £150.

As a thank you for my intervention, you have kindly donated £100 to the Marfan Trust, a charity I support.