Many people will have been glad to see the end of 2016. It seemed that every month brought news of another high profile and well-loved celebrity passing away. Their estates are now being dealt with by their executors, who will no doubt be anxious to carry out their role quietly and away from public view.
Executors of large estates will usually have to submit an Inheritance Tax return to H M Revenue & Customs (‘HMRC’) providing details of all of the deceased’s assets and liabilities. The executors will also need to be aware of details of all gifts worth more than £250 that the deceased made in the last seven years of their life to anyone other than their spouse or civil partner, which may need to be reported to HMRC. Executors can find themselves personally liable to pay financial penalties to HMRC if they do not carry out proper enquires to find out about such gifts.
The flip side of this is that if a recipient of a gift is asked by an executor whether they received a gift from the deceased in the last seven years, and the recipient chooses not to disclose the gift to the executor, the recipient can also find themselves liable to pay penalties to HMRC. In a significant tax tribunal case in 2015, Hutchings v HMRC, a son was held liable to pay a substantial penalty to HMRC when he failed to disclose to his late father’s executors that he had received a large gift from his father six months before his father’s death, which meant that the executors underpaid Inheritance Tax on the estate. As a result of withholding this information, the son was required to pay almost twice what he would otherwise have paid had he told the executors about the gift in the first place. However, the executors were not at fault for failing to disclose the lifetime gift because they could show that they had made the appropriate enquires of the son, and others. From an executor’s point of view, this illustrates the risks involved in carrying out the role of executor, and the need to take care.
For more information, please contact the partner having responsibility for your affairs or any partner in the Private Client Department.