It is rare these days to go more than a few days without news of tax dodging celebrities or banking scandals involving tax havens and wealthy clients.
Amid the press coverage the government announced its latest measures in the Budget to tackle tax evasion and aggressive tax avoidance. But it is not just the rich and famous that HMRC are getting tough on: a string of recent inheritance tax cases show that HMRC is getting tough across the board.
Recently, a woman was jailed for two years and eight months after she lied to avoid paying more than £500,000 inheritance tax due on her wealthy aunt’s estate. Theresa Bunn, whose aunt died in 2010, reported to HMRC that her aunt’s estate was worth £285,000. However, Bunn’s finances became the subject of an HMRC investigation after officers discovered she had been financially supporting a friend and using her friend’s bank accounts to hide money. The investigation revealed the estate was worth more than £1.5m and Bunn was charged with cheating the public revenue.
This follows on from the case of a Sussex man, Clayton Hutchings, who received an £87,000 penalty from HMRC for failing to tell his father’s executors about a cash gift he received the year before his father’s death. In that case the executors wrote to the family beneficiaries asking if they had received any gifts from their late father in the preceding seven years.
There was also a meeting between the executors’ representative and the family, at which the family were asked to disclose lifetime gifts. No disclosures were made. Nearly two years later, HMRC received an anonymous tip-off that Mr Clayton’s father had transferred nearly £450,000 into an undisclosed offshore bank account before his death. The first-tier tribunal found that Hutchings had deliberately withheld the information, resulting in the £87,000 fine.
Most recently a leading barrister is reportedly facing a penalty of £1.25m after a tribunal ruled he had breached inheritance tax rules following the death of his father. In that case there was a failure to comply with a number of HMRC information notices and a failure to provide full information about the estate (and a failure to provide the information on time) which led to the maximum penalty, equal to 100 per cent of tax at stake in the estate.
What all these cases demonstrate is the importance of making full, honest, accurate, and timely disclosures to HMRC about the assets of a deceased individual.
So, what are the obligations on the taxpayer when dealing with an IHT assessment?
And what powers of investigation and enforcement do HMRC have in the event that they are not satisfied with the information that the taxpayer provides?
IHT assessments present a unique problem for the taxpayer (which in the case of an estate will be the personal representatives of the deceased) in that as the individual with the best knowledge of the relevant financial information is no longer around. The onus therefore is on the personal representatives (PRs) of the estate to carry out an information gathering exercise to: a) establish the extent of the assets and liabilities of the estate and: b) to value those assets and liabilities in order to assess whether the estate is liable to IHT.