Executors – do you know what you are doing?
There has recently been a case in the First Tier Tribunal Tax Chamber, where an Executor has been personally found liable for over £300,000 worth of Inheritance Tax (“IHT”). In this case the Executor who was not represented by a solicitor submitted an Inheritance Tax Return to HM Revenue & Customs (“HMRC”) and less than a year later, HMRC opened an enquiry into the account which resulted in HMRC determining that over £300,000 worth of tax was due.
By this time the Executor did not have access to the funds in the estate, because the Executor had released a substantial amount of the monies in the estate to the beneficiary on the understanding that the beneficiary would pay all the estate bills and taxes arising from the estate to date. The beneficiary has not paid any of the outstanding IHT and the Executor has not been able to make any contact with the beneficiary who has moved abroad. The First Tier Tribunal Tax Chamber has confirmed that the Executor is personally liable for this IHT.
What a lot of people do not realise is when an Executor accepts the role of Executor, they are responsible for administering that estate. In this case the Executor released a large substantial amount of estate monies to the beneficiary on the beneficiary’s promise to pay all liabilities and taxes of the estate. However, after this beneficiary had moved away the Executor had in effect lost contact with the beneficiary and was not able to recover any of the monies due for the IHT. As it was the Executor who submitted the IHT Account to HMRC and the Executor is responsible for the estate, in this case the Executor is the person responsible for the payment of the IHT.
Section 200 of the Inheritance Tax Act 1984 is clear, the personal representative of the deceased (in this case an Executor) has an obligation to account for any IHT arising in respect of the estate on death. The Tribunal Judge stated in effect, an Executor’s ignorance of his legal obligations is not a defence, in particular in respect of the obligation to pay the outstanding IHT.
As outlined above, many Executors undertake the estate administration without fully understanding the obligations that would apply to them. At Kerseys Solicitors LLP we do offer services which includes acting for Executors in respect of the administration of an estate. We have experience in administering estates and would advise when monies and assets should be paid to a beneficiary and when money and assets should be retained. Dealing with the administration of the Estate can often start out as a simple affair, but then can unexpectedly become complicated.
An Executor should always think carefully before accepting any Executorship and be fully aware of the responsibilities they are taking on board.