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HMRC internal manual

Inheritance Tax Manual

Calculating the penalty: factors to take into account when abating a penalty

When calculating the penalty you think is appropriate you should reduce the maximum 100% penalty to take into account the following abatements

Type of abatement Purpose Reduction allowed
Disclosure (IHTM36181) To take account of any disclosure and its completeness Up to 20% (or up to 30% in exceptional circumstances (IHTM36183))
Co-operation (IHTM36191) To recognise the taxpayer’s co-operation with our enquiries and the extent to which the necessary information was made quickly available. Up to 40%
Gravity (IHTM36201) To take account of the gravity of the offence Up to 40%

The above percentages are shown in leaflet IHT 13, together with a brief description. You should always be prepared to explain how you have arrived at what you regard as the appropriate abatements. You will normally be able to point out that your suggested figure represents a substantial reduction of the maximum penalties for which formal action could be taken.

The deduction you allow under each heading should be based on a separate and realistic appraisal of that particular abatement factor alone. Any links between the abatement factors should be ignored. This means that a taxpayer whose offences are serious but who makes a full and spontaneous disclosure followed by maximum co-operation will qualify for full reductions for disclosure and co-operation with an appropriately high loading for gravity. Another taxpayer, having offended less seriously, may in the absence of disclosure and co-operation end up with a higher percentage loading.

The objective is to encourage and reward immediate disclosure and willing co-operation leading to a speedy settlement, while at the same time recognising the degree of seriousness of the offence. This means that a taxpayer who has made a genuine attempt to put things right as quickly as possible will get a greater abatement than someone whose admissions have been less than frank and co-operation has been reluctant or withheld. Any doubt concerning the level of abatement for disclosure and co-operation should be resolved by reference to this objective.