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Mr Harris was acting as the Personal Representative (another label for the Executor or Administrator of an estate) for the late Mrs McDonald’s estate.
As part of his obligations, he submitted an Inheritance Tax (“IHT”) return to HMRC but for some reason he did not pay the tax at that time. Ordinarily, IHT is due before probate is granted. Be that as it may, HMRC investigated the IHT account submitted and concluded that the IHT due on the estate was £341,278.76. By the time this came to court the amount was not disputed. HMRC then issued the request for payment to Mr Harris as the PR.
Mr Harris appealed against the decision that he should be responsible for paying the IHT on the basis that he had already distributed the money. Unfortunately, it appears that Mr Harris distributed the estate funds to the beneficiary before paying the IHT, on the understanding that the beneficiary would settle the IHT due. The beneficiary, however, had by then travelled to Barbados and Mr Harris had been unable to contact him since. A court has struck out Mr Harris’ appeal leaving him liable to pay the IHT. The law is clear in this area; it is the responsibility of the Personal Representative to settle the tax due on an estate before money is distributed. The same goes for other liabilities of an estate, i.e. outstanding bills or administration costs.
This case is a stark reminder to Executors/Administrators of their personal obligations and liability when it comes to handling an estate. It is well worth the legal fees involved in instructing a solicitor to do the job for you, or at least advise you on the administration, and take away the risk of being held liable for mistake. Mr Harris now has to find £341,278.76 to pay someone else’s tax bill, while the beneficiary enjoys life in Barbados! No doubt he will now be running up legal costs to get advice on how to sue someone outside the jurisdiction.