In Hutchings v HMRC  UKFTT 9 (TC) the First-tier Tribunal (Tax Chamber) considered an appeal by Mr Hutchings, the residuary beneficiary of his late father’s will, against a penalty imposed on him personally under paragraph 1A of Schedule 24 to the Finance Act 2007. The penalty had been imposed on the basis that Mr Hutchings, a beneficiary of his father’s estate, had deliberately withheld important information about a gift received from his father in the year before his death from the executors of the will.
The balance of an undeclared Swiss bank account had been transferred from the name of the deceased into another undeclared Swiss bank account in the name of Mr Hutchings himself just six months before the death. This therefore constituted a transfer which was relevant to the amount of inheritance tax chargeable. No mention was made of the transfer on the inheritance tax return to HMRC, resulting in an understatement of liability to tax.
Mr Hutchings denied deliberately withholding information and challenged the legal basis of the penalty. However, he was found deliberately to have withheld information about the Swiss bank account. HMRC was also successful in defeating numerous legal arguments raised by Mr Hutchings, including an assertion that paragraph 1A penalty may only apply to him if he had some underlying legal duty to provide information to the executors.
The case of Hutchings is the first case of its kind to be tested in the courts and should serve as a warning to beneficiaries that they must take care to respond honestly and openly to executors’ enquiries. Beneficiaries do not actually have to lie or give false information before a penalty will arise. It is enough that they deliberately fail to disclose any relevant information which would affect the accuracy of the IHT return when asked a question. Such a failure could prove costly, with the penalty in Mr Hutchings’ case being 50% of the potential lost revenue.
The case should also remind executors of the importance of making and properly documenting thorough enquiries when completing an IHT return. In this case, by ensuring that the question of lifetime gifts was appropriately raised, both in person and in formal correspondence, the executors avoided a personal penalty under paragraph 1 of Schedule 24 for filing an inaccurate return. Instead, the blame fell onto the third party beneficiary who had deliberately failed to provide them with the information they had properly requested. Although Mr Hutchings was, in this case a beneficiary, the legislation can be applied to any third parties even where they do not personally benefit from the estate.