In Richard Thomas (as executor) v HMRC [2025] TC09716, the First Tier Tribunal (FTT) found that an Income Tax repayment formed part of a deceased taxpayer’s estate for Inheritance Tax (IHT) purposes.
Mrs E Thomas (ET), for whom Mr R Thomas (RT) was executor, died on 18 December 2020.
On or around 9 February 2021, an Inheritance Tax (IHT) account (form IHT400) was filed with HMRC. This included an estimated Income Tax repayment of £1,340 as an asset of the estate.
- As attorney, RT had filed ET’s 2019-20 tax return in May 2020, reporting an Income Tax repayment of £66 being due. This was ultimately repaid on 24 June 2021.
- On 21 June 2021, ET’s 2020-21 tax return for the period to 18 December 2020 was filed. This reported an Income Tax repayment due by 31 January 2022 of £999.
- RT wrote to HMRC on 11 November 2021 enclosing an IHT corrective account (form C4), removing the estimated Income Tax repayment of £1,340 from the chargeable value of ET’s estate for IHT purposes.
- RT’s revised view was that immediately before ET’s death, she had no enforceable right or entitlement to any Income Tax repayment for the 2020-21 tax year.
- As such, RT argued that there was no ‘property’ within the meaning of s.272 IHTA 1984 to which ET was beneficially entitled at death, and no such amount should have been included in the deemed transfer of value on her death under s.4 IHTA 1984.
- In support of hie view, RT quoted HMRC’s manual at IHTM04030: “the word ‘property’ for Inheritance Tax purposes includes all types of asset, cash, stocks and shares etc as well as land and buildings. It is defined as including all rights and interests of any description ... but we regard this 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”.
- RT argued that prior to death, ET had a mere hope that a repayment of any amount would arise after her return for the year had been completed, and she would have had no way of computing the precise amount to be attributed to that mere hope.
- For the same reasons, the death of ET could not have caused a crystallisation of the right to a repayment of Income Tax. S.171 IHTA 1984 did not apply as any repayment does not come into existence as a result of death: had ET survived until the end of the tax year, she may or may not have been entitled to a repayment of the same amount.
- On 5 December 2023, HMRC issued a Notice of Determination which concluded that the value transferred on the death of ET included the Income Tax repayments.
- RT Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- Before ET’s death she had no right to the refund of Income Tax.
- The refund was essentially caused by the personal allowance, which PAYE deductions anticipated being spread over the full tax year, being fully available for the shorter period to ET’s death.
- The income arising, tax payable, and amount of refund in the relevant tax year was knowable at the moment of death, although not immediately payable. It was only by reason of the death that it was knowable.
- While there may be circumstances that would make the amount of any Income Tax repayment unknowable at the moment of death, this was not the case here.
- Although there had been no assessment, there was only one unique result that would be possible when an assessment was made.
- As such, there was something present far more than a mere hope: a right existed which was therefore 'property'.
- The language parliament had chosen to define property was very broad: 'rights and interests of any description'. This was broad enough to include the right to a tax refund.
- While there was no right to demand repayment until 31 January 2022, the fact that a debt is only payable at a future date does not prevent it from being property at an earlier date.
- The need to make a self-assessment did not prevent the right to the refund of Income Tax at the moment of death from being property.
- Immediately before death, the right to the tax refund was not part of ET’s estate. However, ET’s death caused her estate to be entitled to the refund, and the operation of s.171 IHTA 1984 caused it to form part of the estate.
The appeal was dismissed.
Useful guides on this topic
Estates: Income Tax and Capital Gains Tax
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At a glance: How to calculate Inheritance Tax
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Probate: At a glance
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IHT: Estate planning checklist
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