Following on from the widely reported Hutchings case last year HMRC has now made a statement in its latest Trusts and Estates newsletter about the duties on personal representatives to make full enquiries with the relevant people about whether the deceased made gifts in their lifetime which will impact on the IHT position on death.
Interestingly, HMRC make it clear that the penalties for failing to comply with these duties will be equally applicable to beneficiaries who fail to disclose gifts.
The penalties can be up to 100% of the tax at stake so dishonest beneficiaries might be faced with a large tax bill (which they might not have anticipated when the gift was made and so have made no provision for) plus a penalty on top...and interest on the unpaid tax for good measure!
Primarily, it is the personal representative who is responsible for making an accurate return to HMRC under Schedule 24 Para 1 Finance Act 2007. It is therefore their responsibility if they do not report gifts or do not make adequate enquiries to identify gifts. If inaccuracies result from their failure to take reasonable care to make a complete return, then tax-geared penalties may arise based upon the underlying potential lost revenue caused by that failure. In some cases, the underlying behaviour that led to the under-declaration of tax is not due to the personal representative, who may well have taken all reasonable steps to complete the return correctly. The error may instead be attributable to the person who received the gift from the deceased, by failing to tell the personal representative about the gift.