The recent case of R Thomas v HMRC [2025] UKFTT 1537 (TC) raised an interesting point about whether a tax repayment arising after death formed part of the estate of the deceased for IHT purposes.
This sounds a bit out of the ordinary (not to say boring) but stick with me because there is an important issue lurking – which I dare to say, may be interesting.
The executors said the income tax repayment did not form part of the estate because immediately before her death she had no enforceable right or entitlement to it. Accordingly, there was no ‘property’ within the meaning of IHTA 1984 s 272 to which she was beneficially entitled at that time, and no such amount should have been included in her estate.
HMRC disagreed, despite the HMRC Inheritance Tax Manual at IHTM04030 which said: ‘we regard [property] as only including rights and interests that are legally enforceable. It does not extend to a mere hope or right that is not legally enforceable.’
The FTT held that immediately before death the right to the tax refund was not part of Mrs Thomas’s estate. However, the fact of her death caused her estate to be entitled to the refund – and rather like in Marren v Ingles [1980] STC 500 (HL), the right needed to be valued and brought into charge to IHT on her death. The judge went on to say:
‘At the point of death the amount of the tax refund was calculable. The open market value would be approximately equal to the value of the refund.’
I would respectfully question whether this is correct. In the real world, this would obviously be right – but this is tax. When it comes to valuing an asset for tax purposes, the real world takes a bit of a back seat.
The valuation of property for IHT is governed by IHTA 1984 s 160 as ‘the price which the property might reasonably be expected to fetch if sold in the open market at that time’.
So the question is, if there is a tax repayment of £1,000, but it is not agreed with HMRC until later, how much would it have reasonably fetched if sold in the open market at the date of death.
We know from the extensive cases on valuing assets for tax purposes that we must consider a number of artificial assumptions, including:
a hypothetical willing but not anxious vendor;
a hypothetical purchaser who is a prudent man of business;
a market which includes everybody;
the sale is not a forced sale, but one which must take place on that date; and
there is no opportunity for either party to delay the transaction.
I would suggest that it is self-evident that nobody would pay £1,000 for the right to receive this tax repayment. What is the point of that: paying £1,000 for the right to receive £1,000. Obviously, any prospective purchaser would require a profit. (The case of re Courthope [1928] 7 ATC 538 provides some guidelines.)
And what about the risks involved? There is obviously no credit risk in respect of a tax repayment from HMRC – but we all know that it might take a while to receive it. (Don’t we just.) And there is the loss of interest on (or use of) the money, and the uncertainty about whether the debtor might challenge it, or otherwise cause difficulties.
There must inevitably be a significant discount from the full amount when determining the market value to be brought into account for IHT. I am not going to get into how much that discount should be – but it is for these reasons I feel the FTT took a rather too simplistic view and overstated the value chargeable to IHT.
The recent case of R Thomas v HMRC [2025] UKFTT 1537 (TC) raised an interesting point about whether a tax repayment arising after death formed part of the estate of the deceased for IHT purposes.
This sounds a bit out of the ordinary (not to say boring) but stick with me because there is an important issue lurking – which I dare to say, may be interesting.
The executors said the income tax repayment did not form part of the estate because immediately before her death she had no enforceable right or entitlement to it. Accordingly, there was no ‘property’ within the meaning of IHTA 1984 s 272 to which she was beneficially entitled at that time, and no such amount should have been included in her estate.
HMRC disagreed, despite the HMRC Inheritance Tax Manual at IHTM04030 which said: ‘we regard [property] as only including rights and interests that are legally enforceable. It does not extend to a mere hope or right that is not legally enforceable.’
The FTT held that immediately before death the right to the tax refund was not part of Mrs Thomas’s estate. However, the fact of her death caused her estate to be entitled to the refund – and rather like in Marren v Ingles [1980] STC 500 (HL), the right needed to be valued and brought into charge to IHT on her death. The judge went on to say:
‘At the point of death the amount of the tax refund was calculable. The open market value would be approximately equal to the value of the refund.’
I would respectfully question whether this is correct. In the real world, this would obviously be right – but this is tax. When it comes to valuing an asset for tax purposes, the real world takes a bit of a back seat.
The valuation of property for IHT is governed by IHTA 1984 s 160 as ‘the price which the property might reasonably be expected to fetch if sold in the open market at that time’.
So the question is, if there is a tax repayment of £1,000, but it is not agreed with HMRC until later, how much would it have reasonably fetched if sold in the open market at the date of death.
We know from the extensive cases on valuing assets for tax purposes that we must consider a number of artificial assumptions, including:
a hypothetical willing but not anxious vendor;
a hypothetical purchaser who is a prudent man of business;
a market which includes everybody;
the sale is not a forced sale, but one which must take place on that date; and
there is no opportunity for either party to delay the transaction.
I would suggest that it is self-evident that nobody would pay £1,000 for the right to receive this tax repayment. What is the point of that: paying £1,000 for the right to receive £1,000. Obviously, any prospective purchaser would require a profit. (The case of re Courthope [1928] 7 ATC 538 provides some guidelines.)
And what about the risks involved? There is obviously no credit risk in respect of a tax repayment from HMRC – but we all know that it might take a while to receive it. (Don’t we just.) And there is the loss of interest on (or use of) the money, and the uncertainty about whether the debtor might challenge it, or otherwise cause difficulties.
There must inevitably be a significant discount from the full amount when determining the market value to be brought into account for IHT. I am not going to get into how much that discount should be – but it is for these reasons I feel the FTT took a rather too simplistic view and overstated the value chargeable to IHT.
