Widows and widowers are struggling to claim inheritance tax rights because of HM Revenue and Customs red tape, accountants Horwath Clark Whitehill have warned.
And the firm has urged the department to soften its “very unsympathetic” stance.
In his pre-Budget report to the House of Commons late last year, chancellor Alistair Darling, announced married couples and civil partners would be allowed to share each other’s nil-rate band – the value of the estate not subject to IHT.
The Government was quick to highlight this would allow couples to keep more money out of the taxman’s reach, while blunting Conservative pressure to increase the nil-rate band for all.
So, on the second death any unused proportion of the first partner’s nil-rate band can be added in. For example, if the first partner dies leaving 50 per cent of his nil-rate band unused and the second dies in the current 2008/09 tax year, the amount available to the latter is the current limit of £312,000, plus £156,000, totalling £468,000.
One key feature was it would apply to all couples where the second partner died on or after October 9, 2007. However, HMRC’s demands for paperwork relating to the first death are making it difficult for widows and widowers to take advantage.
HCW director of taxation Graham Apperley said: “Many are reporting HMRC is insisting a long list of documents is produced to prove the late spouse has not used his nil-rate band, before allowing a transfer. Such documents include the grant of probate, will and any deed of variation.
“The problem arises because it has been practice for most solicitors to store documents for just six years, and grants of probate for 12, before destroying these.
“This is making it very difficult for elderly taxpayers to gather the documentation needed to prove how much nil-rate band was actually used by their deceased spouse.”
“The attitude of HMRC, so far, been very unsympathetic. The current stance is to insist that documents are produced in order to substantiate claims. It believes that it is possible to obtain copies of some of these documents, such as wills, from public record bodies such as the Court Service and General Register Office, and expect the surviving spouse to locate these.
“However, this would certainly prove very difficult to do for elderly people without professional help. We and others have emphasised to HMRC the need to be more lenient in its treatment of elderly people whose spouses died many years ago and where there are few records available.
“We wait to see whether HMRC’s attitude will soften in the coming months.”
Mr Apperley went on to urge individuals to take advice where necessary.
“It would clearly be unfortunate for an estate to be burdened with a large inheritance tax bill just because the paperwork was not in order,” he added.