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Disclosing Lifetime Gifts: Who is responsible?

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By Laura Walkley

   A recent Tax Tribunal decision has made it clear that the recipient of a lifetime gift from a person who subsequently dies can be held personally responsible for extra tax and penalties if they fail promptly to tell the executors administering the giver’s estate – a significant change from the usual position, which holds the executors responsible.

Inheritance Tax (IHT) is usually paid by the executors from the deceased’s estate, and it is normally the executors who are liable if it later comes to light that any assets or gifts have not been disclosed to HMRC. IHT can be charged on lifetime gifts if the giver dies within seven years.

Clayton Hutchings received almost £450,000 from his father just seven months before his father died. The executors of the estate asked Clayton on more than one occasion whether he had received any gifts from his father; he kept quiet until the gifts (made from his father’s undeclared Swiss bank account to his own) came to light, as the result of an anonymous tip-off to the Revenue.

Mr Hutchings argued that he thought he did not need to declare the transfer because both his and his father’s accounts were held offshore. He also claimed that the executors did not make it clear to him that he needed to declare lifetime gifts, and that they had submitted the IHT return prematurely, without undertaking thorough enough investigation.

Unfortunately for Mr Hutchings, the executors had kept meticulous notes throughout the administration of the estate, and could show that they had asked the beneficiaries to disclose any lifetime gifts on two separate occasions. The Tribunal rejected Mr Hutchings’ assertion that the requests were ‘gibberish’ and that he could not understand them; they were written perfectly clearly.

The executors also escaped criticism on the basis that there was no paperwork in Mr Hutchings Senior’s house which related to his Swiss account – so even if they had scoured through his papers at home, which they were not obliged to have done, the gifts would not have come to light. The responsibility lay firmly in Clayton Hutchings’ hands.

The tribunal further held that the executors had submitted the IHT return at an appropriate point.

Mr Hutchings was charged £113,794, which was made up of the potential loss of IHT revenue as well as a 65% penalty; this figure was later reduced to £87,533, which presumably came as cold comfort to him.


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