In a recent case a beneficiary has received an £87,000 penalty from HM Revenue & Customs for failing to tell his father’s executors about a cash gift he received the year before his father’s death.
It is the responsibility of executors to make enquiries of the deceased’s family of any lifetime gifts made in the preceding seven years. If gifts are made and executors have not been thorough in their research, penalties as much as one hundred percent of the tax that is now payable can be due.
In this case it was found that the executors had behaved properly in speaking to the family beneficiaries. A meeting was held at which the beneficiaries were asked if they had received any gifts from their late father in the preceding seven years. No disclosures were made and the executors duly submitted the Inland Revenue form on this basis.
Two years later HMRC received an anonymous tip-off that one of the beneficiaries had an undisclosed asset and it became clear that he had received a gift of £450,000 from the deceased. The beneficiary was charged £47,000 in inheritance tax and sixty five percent of the potential loss of inheritance tax revenue linked to the gift. The total came to over £110,000.
The beneficiary appealed but his appeal was rejected, finding that he had deliberately withheld the information.
This should serve as a warning not only to executors but also to beneficiaries that they must take care to respond honestly and openly to executors’ enquiries.
Executors should make and properly document thorough enquiries to establish a full picture of the deceased’s estate and history before completing the necessary paperwork.
Instructing a solicitor to make sure that executors are covered against any such penalties for non-disclosure would be a prudent safeguard.