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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Negotiating a penalty: when to seek to agree a penalty

While you should investigate and reach agreement in principle if negligence has arisen (establish culpability (IHTM36225)) and a penalty will be sought, you should defer seeking to settle the actual amount of the penalty until all your enquiries into the estate are concluded. This is because as shown in the calculation of the culpable tax (IHTM36176) the maximum tax geared element of the penalty can be affected by other changes to the taxable value of the estate. The difference under IHTA84/S247 (2), which is used to calculate the maximum tax geared element, is between the amount of tax that was payable on the account as originally submitted and the amount found to be payable as shown in the final tax calculation at the end of the enquiry. You will also need to review the position in the event that further omissions or undervaluations come to light.

You should nevertheless give the taxpayer an indication of the likely amount of penalty that will be sought, based upon current values and information, but you should make it clear that you will notify the final amount to be sought once the case is settled and the final tax payable figure has been notified. You should seek your manager’s prior approval (IHTM36223) before notifying the taxpayer of any provisional or final penalty figures.