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Do you have to disclose lifetime gifts to HMRC on an inheritance tax return?

15th December 2017

When someone dies, and we are asked to deal with the probate or administration of an estate, we ask if the deceased made any gifts of their assets during their lifetime. This is an important question, particularly if the estate is going to be subject to paying inheritance tax.  Often no such gifts are made, however, sometimes there have been and they may need to be fully disclosed to HMRC.

Marie Tisdale, wills and probate solicitor at Ansons in Cannock and Lichfield, Staffordshire, advises what would happen if gifts are not disclosed to HMRC and, how would HMRC know that there were undisclosed lifetime gifts by the deceased?

“The details of the case between the Hutchings family and the HMRC is the clearest example I can give of the consequences of not fully declaring to HMRC,” says Marie.

The late Robert Hutchings died in 2009, leaving an estate worth at least £3 million.  His will appointed professional executors were to deal with the estate. The executors checked with Mr Hutchings family both in meetings and in writing whether Mr Hutchings had made any lifetime gifts. Only one family member confirmed they were not aware of any lifetime gifts. The executors submitted the relevant information to HMRC accordingly.

Some two years later HMRC received an anonymous tip-off that Clayton Hutchings, son of the deceased, had received nearly £450,000 from his late father. This was investigated by HMRC and this led to Clayton Hutchings being asked to personally pay £47,000 additional inheritance tax due on the gift and a penalty (which was reduced) of £87,533. Clayton was ultimately unsuccessful in his appeal against paying the penalty to HMRC.

HMRC said that executors were entitled to rely upon the information about gifts provided by the deceased’s family and advisors. The executors avoided a penalty because they were able to show they had asked about any lifetime gifts. So, the blame fell upon Clayton who had deliberately failed to provide the relevant information.

Although the value of the estate in this case is large it is the perfect example of what can happen if an estate is not dealt with correctly. It should be a reminder to executors, whoever they are, that they need to make investigations about the deceased’s finances as fully as they can. It is also a warning to beneficiaries and family members about the need to be open and honest about what they have received from the deceased during their lifetime. Otherwise, there could be serious financial consequences.

This case should also remind non-professional executors that dealing with an estate may not always be as straightforward as it initially seems and that is a good idea to take independent legal advice from a solicitor who specialises in wills and probate about dealing with the estate properly.

Ansons can help you with:

If you need to apply for probate, have been appointed as an executor in a will or need advice on any other wills and probate matter contact Marie Tisdale on 01543 267 981 or email mtisdale@ansonssolicitors.com. 

 

The contents of this article are for the purposes of general awareness only.  They do not purport to constitute legal or professional advice.  The law may have changed since this article was published.  Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.