Anyone who has dealt with a taxable estate will be familiar with the amount of paperwork that the executors are required to submit to HMRC, in the form of the IHT400 account. Our clients often find the arduous task of gathering detailed information, paying out for valuations and repeatedly checking the many schedules to the tax form a very frustrating process. This is perhaps made more frustrating by the fact that as part of the process the family have to pay an amount of inheritance tax up front and then plan how any remaining tax will be paid, with interest. Many people wonder whether it is really necessary to provide such detailed disclosure to HMRC and some question how HMRC would ever know if they decided not to tell them about every single asset.
56 year old Therese Bunn clearly had these thoughts when she began dealing with her Aunt’s estate. If an estate is under the current nil rate band threshold of £325,000, then there will be no inheritance tax to pay and a there is a lot less paperwork to complete. Ms Bunn told HMRC that her Aunt’s estate was worth around £285,000 so no inheritance tax was payable. Unluckily for her HMRC carried out further investigations on the estate, as they often do, and found that the true value of the estate was in the region of £1.5 million. This took into account some substantial cash gifts the Aunt had given to Ms Bunn during her lifetime. All lifetime gifts within the 7 years prior to death must be disclosed in the tax account but Ms Bunn had decided not to disclose this information. She had then lied about the value of assets passing to her upon her Aunts death. Ms Bunn admitted that she had lied about the value of the estate and had purposely failed to disclose the correct information in an attempt to avoid the inheritance tax bill, which was nearly £500,000. She was sentenced at Chichester Crown Court on 19th March and given a prison sentence of 2 years and 8 months.
These sorts of cases are not usually publicised by HMRC, but perhaps the extent of the fraud in this case called for it. HMRC have extensive powers to investigate deceased estates. HMRC have a department to deal with each different type of asset and each department will examine the information provided and carry out additional checks. For example, property is referred to the District Valuer’s office. When dealing with taxable estate it is common to receive requests for further information and the District Valuer will often visit a property to verify the value. Theresa Bunn’s case is perhaps at the more extreme end of the spectrum, given the clear intention to defraud and the amount involved, and the punishment reflects this. However, executors can also find themselves liable where they have not taken their responsibility seriously and not bothered to gather the correct information or used estimates where they should have obtained formal valuations. HMRC can issue penalties where the executors have not made full enquiries about the assets.
Theresa Bunn’s case is a warning to executors to make proper enquiries on an estate they are dealing with and to ensure that all relevant information is disclosed. Although a lay person can carry out the probate process themselves, taxable estates can be complicated to deal with and it is advisable to employ the assistance of a solicitor with expertise in this area.
In this case, if the Aunt wanted to reduce her inheritance tax bill she should have taken action much earlier during her lifetime and undertaken some estate and tax planning. The thought of having to pay £500,000 in inheritance tax is an uncomfortable one for us all; however committing tax fraud is clearly not the answer! There are legitimate ways of reducing your inheritance tax liability and individuals should seek specialist tax planning advice in this respect.
Myerson Solicitors LLP provides specialist advice relating to wills, estates, probate disputes, inheritance tax planning and powers of attorney to clients in Manchester and Cheshire.