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HMRC internal manual

International Manual

From
HM Revenue & Customs
Updated
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Examples: Effect of minimum rate & IHT

Facts

Mr A had a business on which he did not disclose tax liabilities (either VAT or direct tax), and put all the income arising from that business in a Swiss account. He died in 2005. The Swiss account then held a total £500k, which was inherited by Mrs B as sole beneficiary. She was also the executor of Mr A’s estate. She opened a new account in Switzerland, but no IHT was paid.

31/12/05 £500,000 cb
     
Interest and gains £20 k pa £100k
31/12/10 £600,000 C8
Interest and gains £25k p.a £50k
31/12/12 £650,000 C10

Find the relevant values for the formula

n = 5

C10 < C8 x 1.2 (720,000) but C10 > C8, so Cr is C10 = £650,000

So C9 = 650,000 x 103% = £669,500

So C10 = 650,000 x 106% = 689,000

Calculate the formula result

T= 34% x {[2/3(650,000 - (5/8 x 500,000)]  [1/3((5/10 x 650,000) + 2/10(669,500 +
         
    +   689,000/2))]}
T = 34% x {[2/3(650,000 - 312,500)] + [1/3(325,000 + 2/10(679,250)]}  
T =  34% x {[2/3 x 337,500] + [1/3(325,000 + 135,850)]}  
T= 34% x {225,000+ 153,617}    
T = 34% x 378,617    
T = £128,730      

Is there an increased charge?

tc = T / Cr

tc = 128,730 / 650,000 = 0.198

tc < 0.34 so no increased charge.

But tc < 0.21 so there is a minimum rate of 21% on Cr.

So T = 650,000 x 21% = £136,500

Which assets are eligible for clearance?

Maximum value of cleared assets = Cr

Cr = £650,000

The value of assets in the account at any time between 31/12/10 and 31/12/12 inclusive does not exceed £650,000.

Therefore all the assets in the account at 31/12/12, with total value £650,000, are eligible for clearance