Gift secrecy leads to £87,000 IHT penalty

A man who failed to disclose a gift of almost half a million pounds from his late father has been ordered to pay an £87,000 penalty to HM Revenue & Customs (HMRC).

The case involved Clayton Hutchings, the son of wealthy farmer Robert Hutchings, who died in October 2009. In his will, Robert left nothing to two of his five children, £150,000 each to two others and the remainder of his estate, which was worth at least £3 million, to his son Clayton, a self-employed carpenter.

As part of the probate process, the executors asked the family beneficiaries if they had received any gifts from the late Mr Hutchings in the previous seven years, to assist in calculating inheritance tax (IHT). No gifts were disclosed and the executors submitted an IHT400 form, used in the probate process when IHT is payable on an estate.

However, almost two years later HMRC was anonymously told that Clayton Hutchings had an undisclosed Swiss bank account, which he subsequently formally disclosed. It was then revealed that the late Mr Hutchings had transferred almost £450,000 from his own undisclosed Swiss account into Clayton’s account in April 2009.

HMRC claimed an additional £47,000 in IHT from Clayton Hutchings, along with a penalty of £87,533. He paid the IHT but appealed against the penalty, arguing that he had not deliberately withheld information and that the executors had not made clear the need to disclose all lifetime gifts.

He also said that if the executors had checked his late father’s home they might have found documents concerning the gift and that they had submitted the IHT400 too early.

The First-tier Tribunal, which hears appeals against decisions relating to tax made by HMRC, said the executors were entitled to rely on information provided by family members and others and that documents relating to the late Mr Hutchings’ account were unlikely to have been found in the house. They also said it was good practice to submit the IHT400 form early and the executors were not to blame if they had been given incorrect information.

In a ruling published on 12 January, the tribunal rejected the appeal. The executors avoided any penalty on the basis that they had raised the issue of lifetime gifts appropriately.

Palmers partner Tim Steele said: “This case highlights the importance of compliance with inheritance tax rules, to avoid unwelcome additional charges.”

“Working with legal advisors experienced in inheritance tax issues, both when putting a will in place and during the probate process, is a wise investment in ensuring that all the appropriate steps are followed and the right amount of IHT is paid at the right time. For more information, please contact our Wills, Trusts and Probate team.”