A recent appeal considered by the Tax Tribunal has highlighted the importance of the disclosure of lifetime gifts made by deceased individuals.
Robert Hutchings died in October 2009, leaving an estate worth approximately £3 million. In the course of gathering in the necessary information in order to complete the probate application, the executors wrote to the late Mr Hutchings’ five children, to ask if they had received any gifts from their late father in the seven years prior to his death. Only one of the five children replied to say that she was not aware of any gifts. Additionally, a meeting was held at which the executors again raised the question with the family members present. Nothing was said at this meeting, so the executors proceeded to submit the application based on the information that they were aware of.
Clayton Hutchings, the son of the late Robert Hutchings received a share of the residue of the estate. Two years after probate had been granted (and because of an anonymous tip-off), HMRC became aware that, in April 2009, 5 months before his death, the deceased had transferred the sum of £450,000 from a Swiss bank account into a Swiss bank account in Clayton’s name. Neither this gift, nor the existence of the Swiss bank account had been disclosed to HMRC.
HMRC claimed an additional £47,000 in inheritance tax. HMRC also levied a penalty of 65% on the potential loss of inheritance tax revenue linked to the gift. Initially calculated at £113,794, this was later reduced to £87,533.
Clayton Hutchings paid the additional inheritance tax attributed to the gift, but appealed against the penalty on the basis that he had not withheld the information deliberately. He was under the mistaken belief that gifts of overseas assets were not subject to UK tax and therefore there was no need to declare them. He argued that the executors had not made it clear to him that the gifts needed to be declared, and attempted to lay the blame on them by accusing them of not undertaking a thorough search of the late Robert Hutchings’ papers.
The appeal was rejected, with the Tribunal concluding that Clayton Hutchings had deliberately withheld the information. The executors, by being able to demonstrate and prove that the question of lifetime gifts was adequately raised, both in correspondence, and in the face to face meeting, avoided a personal penalty for filling in an inaccurate tax return.
The case is the first of its kind to be considered and should therefore act as a warning both to executors to ensure that full enquiries are made, and to beneficiaries, to ensure that full disclosure is made