IHTM31613 - Assessing: repayments: complicated cases

Working out the interest attributable to repayable tax is more complicated where

  • there has been more than one previous calculation, or
  • tax previously paid has been satisfied out of money on deposit.

If the tax to repay is less than the tax charged on the previous calculation then the position is as for a simple case (IHTM31612). But, if the tax to repay is more than the tax charged on the previous calculation then you must apply the rule `last in - first out’.

Example 1 - more than one previous calculation

  • Tax paid on IHT400 1 October 2012: £6,000; interest = £270
  • Tax paid on calculation dated 1 December 2012: £2,000; interest = £120
  • Tax of £4,000 is now repayable

Calculate interest repayable as follows:

  • As the amount repayable (£4,000) is more than the tax assessed on 1 December 2012 (£2,000) all of the interest charged on this calculation is repaid = £120.
  • The balance of tax repayable is £2,000.
  • The interest repayable on this is (£2,000 ÷ £6,000) × £270 = £90
  • Total repayment = £4,000 (tax) + £210 (interest) (£120 + £90) = £4,210

Example 2 - tax previously paid satisfied out of deposit

Tax is due on 31 December 2010. Total tax of £16,000 was calculated on the last calculation dated 1 June 2011.

To reduce that amount, deposits were applied

  • £2,000 paid on 3 February 2011
  • £11,000 paid on 5 March 2011

The interest calculated was

  • on £16,000 from 1 January 2011 to 3 February 2011 = £44.59
  • on £14,000 from 4 February 2011 to 5 Mar 2011 = £34.43
  • on £3,000 from 6 March 2011 to 1 June 2011 = £21.64
  • The total interest = £100.66

Tax of £3,750 is now repayable

Calculate the interest repayable on that sum as follows:

  • As the repayment is more than £3,000 all the interest charged on this is repaid = £21.64.
  • Apportion for remaining tax (£3,750 ÷ £14,000) × £34.43 = £9.22
  • Apportion for remaining tax (£3,750 ÷ £16,000) × £44.59 = £10.45
  • Total interest to be repaid is £41.31
  • Total repayment £3,750 (tax) + £41.31 (interest) = £3,791.31