When preparing and dealing with probate cases, full disclosure of all assets is paramount as you will be aware. Failure to do so can result in hefty fines from HMRC. An example of such a case of recent is one that focused on the matter of a beneficiary failing to declare gifts received in the preceding 7 years prior to their father’s death, to the Executors. Have you dealt with similar circumstances yourself — has a client ever failed to declare all assets to you when preparing probate?
The father within this case, Robert Hutchings, was a businessman and farmer. Upon his death in 2009, his estate was worth at least £3 million, being the value of his farm property. Hutchings had five children, but his final will, executed six months prior to his death, disinherited two of them. A further two children were left legacies of £150,000 each. The residue went to the fifth child, Clayton Hutchings. The will also nominated two professional executors.
While preparing for probate, the executors wrote to the family beneficiaries asking if they had received any gifts from their late father in the preceding seven years. Only one of the beneficiaries replied saying that she was not aware of any gifts. It also appeared that there was a meeting between the executors’ representative and the family soon after the death, at which point the family were asked to disclose any lifetime gifts. No disclosures were made during that meeting and the executors duly submitted the IHT400 form on this basis.
Do you think the executors did enough to clarify the matter of gifts received, bearing in mind it is claimed only one of them replied and that they sent a representative? Could this have caused matters to be misconstrued? What would you have done differently?
It appears probate was granted and the matter was thought to be concluded. However, in a turn of events some two years later, Clayton Hutchings, the beneficiary who received the residue of the estate, was subject to an anonymous “tip off” to HMRC in respect of an undisclosed bank account. Allegedly it emerged that, in April 2009, Clayton Hutchings’ father had transferred nearly £450,000 from his own Swiss account (which was also undisclosed) into Clayton Hutchings account. HMRC sought to claim IHT on this sum, which was an additional £47,000 in inheritance tax, on Clayton Hutchings personally. However, HMRC also charged him a penalty of 65% on the potential loss of IHT revenue linked to the gift. This penalty was calculated at £113,794, although HMRC later reduced the figure to £87,533 – a hefty penalty which surely must serve as a warning to all.
Although Clayton Hutchings paid the additional IHT bill attributed to him, he appealed against the further penalty. His argument was that he did not deliberately withhold information and claimed he never knew how much money was in the Swiss account. Notes of his conversations with his solicitor allegedly suggest he believed gifts of overseas assets were not subject to UK tax and thus did not need to be declared. What do you make of this claim and how would you have dealt with it?
Clayton Hutchings’ further claim that he did not deliberately withhold information was dismissed by HMRC. Mr Hutchings claimed his father’s executors had not made it sufficiently clear to him that he must declare all lifetime gifts. He also criticised the executors for not thoroughly searching his late fathers’ home for relevant documents, which may have disclosed the gift to them; and for submitting the IHT400 form earlier than it need have been. Do you agree with this? Do think that it is up to executors to search for any such documents, or should it have been the responsibility of the family to produce documentation?
Consequently, the Tribunal disagreed. It ruled that executors are not normally expected to search a house for every document and are entitled to rely on information provided by the deceased’s family. The Tribunal further stated that it is good practice to submit the IHT400 form early, if the executors believe they are in a position to make an accurate return. They stated it was not the executors’ fault that they had not been given correct information. The Tribunal thus rejected his appeal, finding that he had deliberately withheld the information and the penalty was upheld.
What are your thoughts on this matter? Do you agree with the final outcome?
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