HMRC made a mistake — but won't give us our £15k back

Times

4 days ago

My mother died last year and I have been settling her estate with help from my brother-in-law. It was relatively simple: she had some investments and a mortgage-free house. But it has been time-consuming. Filling in all the paperwork took us an entire day, and we are professionals (he is an accountant and I am a retired judge). Even then we had problems because HM Revenue & Customs (HMRC) gave us different information about what tax we should pay.
After probate was granted in October, we spoke to two estate agents who estimated that the house was worth £550,000. We told HMRC this was the probate value and we also put it up for sale at that price.
Several months later we ended up selling the house for £627,000. We sent a form to HMRC to correct the probate value to the sold price. We then calculated the inheritance tax (IHT) due as roughly £27,800 and immediately paid HMRC to avoid any interest charges. But then HMRC wrote to us to say that we should pay capital gains tax (CGT) instead. We were convinced that this advice was wrong, so we each called HMRC separately, but were both told that we should pay CGT.
HMRC then sent a CGT calculation saying we owed £14,965, which we paid. We then asked HMRC to return the IHT payment. Twice we were told that the refund was in progress but that was weeks ago and we still don't have it.
After chasing HMRC for a third time we were told that we should have paid IHT after all. It said an IHT calculation would be sent, but we are still waiting for that.
We are so confused. We just want to pay the correct tax and get a refund on the other payment.Name and address supplied
I was so sorry to hear how painstaking the probate process had been for your family. It sounded emotionally and practically difficult enough without HMRC adding to your burden by giving you conflicting information.
An estate is exempt from IHT on the first £325,000, which increases to £500,000 if the person who has died passes on their main home to children or grandchildren. Married couples and civil partners can leave assets to each other free of tax, and also inherit each other's tax-free allowances.
Your father died in March 1990 when the IHT allowance was £118,000. But he had left this amount to you and your sisters on his death, which meant that his tax-free allowance had already been used up and could not be inherited by your mother. The good news is that even though he died before the residence allowance was introduced in 2017, your family could claim this extra £175,000 allowance from his estate because his wife had died after this date (yet another example of how complex the rules are).
This meant that up to £675,000 of your mother's estate was free of tax. When her house was sold for £627,000 and combined with other taxable assets in her estate of nearly £117,000, she was put over the tax-free threshold by more than £69,000. IHT is charged at a rate of up to 40 per cent, leaving £27,800 to pay.
If a property is sold for a lot more than the estimated value when you inherited it, HMRC might ask questions and expect you to pay extra tax.
I spoke to Stefanie Tremain from the accountancy firm Blick Rothenberg who said that HMRC will usually get the district valuer, which is a government service, to review property valuations in an IHT return.
• Will my partner pay tax on the property he inherits from me?
Tremain said: 'If the value in the IHT return is accepted, a future sale value should not be queried or cause HMRC to revise the probate value.'
But you had applied for a correction, essentially changing the estimated valuation to the price that the property was actually sold for. This meant that technically there had been no increase in the value of the property since you inherited it because you had corrected the value that should be used for the IHT calculation.
CGT is charged if you make a profit when you sell a property that isn't your main home. When you inherit a property there is no CGT to pay. It is only when you sell the property at a later date, and it has increased in value since you inherited it, that CGT would be owed.
When you changed the value of the property, HMRC was under the impression that the property had increased in value by £77,000 between you inheriting and selling it. After the tax-free allowance of £3,000 and other exemptions, such as estate agent and solicitor fees to sell the property, were deducted, CGT was charged at a rate of 24 per cent on the rest of the gain.
Tremain said: 'If you have corrected the IHT return to increase the probate value of the house then you have increased the estate's IHT liability. But as a result you have effectively wiped out the CGT liability.' So in other words, CGT didn't apply to you.
It sounds as though there was some confusion during those conversations with HMRC that caused it to believe that you needed to pay CGT rather than IHT, which wasn't right. The fact that even HMRC manages to get things like this wrong tells you everything you need to know about how complicated our tax system is.
After my involvement HMRC spoke to you to apologise for giving you incorrect advice and has finally refunded the CGT payment of £14,965, plus £63 interest.
It also finally sent an IHT calculation showing that you had actually overpaid by £52, which has also been refunded. HMRC said: 'We have apologised and confirmed that CGT was not due.'
You said: 'We never thought the problem was a particularly difficult one, but we were getting nowhere and would no doubt still be in limbo without your help.'
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In March last year my husband and I went on the holiday of a lifetime to Chile. We booked several internal flights through Booking.com. All was going well until we tried to check in for our flight from Patagonia to Santiago. It looked like our flight didn't exist. After logging into the airline's website, we discovered that the flight had been rescheduled and we had been reallocated to a flight for the previous day, so we had unknowingly missed it. There was no way we could have caught that flight as we had been hiking in a remote location.
Booking.com told me that it had sent me an email about the change but I have searched my inbox, including my junk folder, and I can't find any evidence that it contacted me about this.
We were incredibly stressed when we found out. We were in a remote part of Chile where transport options are limited, so we felt pretty stranded.
Booking.com also wasn't particularly helpful in finding us alternative arrangements, so we requested a refund of £377.91 for the flight we missed. We managed to book a flight for the next day with a different airline for £583.80.
Given that Booking.com failed to tell us about the flight change, we think it should reimburse us for our more expensive replacement flight. But a year on, we now have a six-week-old baby but still no refund. We have contacted Booking.com many times over the past year but are repeatedly told that it won't refund us until they receive it from the airline. While we have been told the matter has been escalated, we have seen no evidence of progress.Vicky, address supplied
A year is a long time and much can happen, so much so that you had welcomed a new family member, and yet there was no sign of your refund.
Booking.com has a partnership with the travel agent Gotogate which arranges flights. When I spoke to Gotogate's parent company, Etraveli Group, it claimed it had emailed you on February 20 last year to tell you that your flight was leaving a day earlier than planned. I couldn't get to the bottom of why you didn't get that message.
Etraveli Group said: 'While we acknowledge the customer's claim that she did not see this message, and understand the stress and consequences this situation caused, the communication was sent and delivered correctly from our end.'
• Cancelled flight fiasco on Booking.com has cost me £3,600
While it did request a refund from the airline, usually when a customer misses a flight the ticket is seen as 'used'. I suspected this was why a refund from the airline wasn't forthcoming. But thankfully after I explained the situation to the airline, it sent a refund of £346.99 to Booking.com, which it then passed on to you. It was odd that you were missing the remaining £30.92 which you had paid for checked-in bags, and it was only after I chased all three companies that you got this payment.
Booking.com said: 'We can see that the airline made a schedule change which is not uncommon in the aviation industry. Our partner, Etraveli Group, informed the customer of the change and provided options to accept the new flight or request a full refund.'
As a gesture of goodwill, Booking.com has given you £189 travel credit to make up for the extra cost of the replacement flight. While this left a shortfall of nearly £17, you were satisfied with this.
• £1,495,607 — the amount Your Money Matters has saved readers so far this year
If you have a money problem you would like Katherine Denham to investigate, email [e-mail]. Please include a phone number