Will beneficiary penalised for not disclosing lifetime gift to executors

Home / Wills, Trusts and Probate  / Will beneficiary penalised for not disclosing lifetime gift to executors

Call the Slee Blackwell helpline on 0808 139 1606 click to call or email us

HM Revenue and Customs (HMRC) have imposed a penalty of £87,000 on a beneficiary for failing to tell the executors of his father’s estate about a cash gift he received the year before his father passed away. The deceased was a businessman who at his death had an estate worth in the region of £3 million. He disinherited two of his children, left legacies of £150,000 to two more and the residue went to a fifth child, Clayton Hutchings. The executors asked the beneficiaries whether their father had made any gifts to them in the preceding seven years. The beneficiaries didn’t report any gifts being made so the executors submitted the IHT400 form accordingly. Almost two years later, HMRC were tipped-off that Clayton Hutchings had an undisclosed offshore bank account. HMRC obtained disclosure and it was revealed that the deceased had transferred approximately £450,000 into Clayton’s account. HMRC accordingly claimed an additional £47,000 in inheritance tax (IHT) from Clayton and imposed a penalty based on 65% on the potential loss of IHT revenue associated with the gift.

HMRC Penalty

The penalty was initially levied at over £113,000 but HMRC subsequently reduced it to £87,533. Clayton appealed against the penalty on the basis that he hadn’t deliberately withheld information and didn’t know how much money was in the Swiss account. He thought gifts of overseas assets were not subject to UK tax and didn’t have to be declared. He pointed the finger at the executors for not making it sufficiently clear that he must declare all lifetime gifts. The executors were also criticised for: 1. not adequately searching the deceased’s home for all documentation (as this would have revealed that a gift had been made) and 2. for submitting the IHT400 form earlier than it was necessary

Executors not to Blame for Failure to Disclose by Beneficiary

The First-tier Tribunal rejected his arguments, ruling that executors cannot reasonably be expected to search a house for every document and are entitled to rely on information provided to them. It was also considered unlikely that relevant documents would have been found in any event. The Tribunal also reaffirmed that it is good practice for executors to submit the IHT400 form early, where they feel they can make an accurate return. The Appeal was dismissed, the penalty was upheld and the executors were exonerated – after all, it was not their fault they had been given incorrect information. This case serves as a timely and important warning to beneficiaries to ensure they provide honest responses to executors’ enquiries.

If you are a Beneficiary or Executor and require guidance on lifetime gifts then give our Helpline a call on 0808 139 1606 or drop us an email.