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Matthew Hutton MA, CTA (fellow), AIIT, TEP, comments on HMRC's practice in relation to the collection of Inheritance Tax on failed Potentially Exempt Transfers (PETs) from the Personal Representatives of a deceased individual's estate.  

Context

It is worth being reminded that there is some limitation on HMRC’s ability (albeit self-imposed) to collect IHT on failed PETs from PRs. This goes back to (so far as I recall) around 1991 and is now included in the Manual as set out below:

‘IHTM30044 - Liability on potentially exempt transfers (PETs): practice relating to personal representatives

The liability of the transferor's personal representatives (IHTM05012) is a sensitive area of the legislation. You must alert the personal representatives at an early stage where recourse to them might occur. In cases where the transferee (IHTM30051) is not resident in this country we are likely to be aware of that fact from the replies on the schedule IHT403, but nevertheless we should still warn the personal representatives of their potential liability, failing payment by the transferee and any other persons who may be liable under IHTA84 S 199 (1).

Similarly SAV should be alert to any valuation in which it is evident that the value of the property transferred is far less than the value transferred and where tax will be payable on the gift. SAV should give a warning to this effect as soon as possible to whoever issued the valuation request and it will then be their responsibility to decide what further action to take.

You must remember that the facility to have recourse to the transferor's personal representatives is not to be regarded as a soft option. We are to make all the attempts at recovering from the persons liable under IHTA84 S 199(1) that we would presently contemplate in a similar situation against any liable person. But having warned the personal representatives that we may look to them to discharge the tax liability, we must ensure firstly that they are kept fully in the picture and secondly that a decision actually to collect from them is not delayed for years.

The Law Societies of England and Scotland have expressed concern about the liability of personal representatives under IHTA84 S 199 (2). In response HMRC have indicated that we

‘will not actually pursue for IHT personal representatives who

• after making the fullest enquiries that are reasonably practicable in the circumstances to discover lifetime transfers, and so
• having done all in their power to make full disclosure of them to the Board of HMRC,

have obtained a certificate of discharge and distributed the estate before a chargeable lifetime transfer comes to light.

This statement of the Board's position is made without prejudice to the application in an appropriate case of IHTA84 S 199 (2).’

The quotation is from letters sent to the two Law Societies on 6 February 1991. It was published in the Law Society's Gazette dated 13 March 1991, page 17.

Note that tax collected from personal representatives of the transferor under IHTA84 S 199 (2) was never a liability of the transferor. Accordingly IHTA84 S 5 (4) cannot apply and

• the tax so collected is not deductible against the transferor’s taxable estate and
• there is no question of grossing up (IHTM14593) the lifetime transfer.’

Comment

If, in whatever circumstances, HMRC do successfully pursue the PRs for the tax note that there is no statutory right of reimbursement against the transferee on the part of the PRs.

THE 8th ESTATE PLANNING CONFERENCE: CURRENT ISSUES 2009

A full-day Conference presented by Matthew Hutton

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SEPTEMBER • Newmarket • Sutton Scotney, Nr Winchester

OCTOBER • Winterbourne, Nr Bristol • Leeds • London

EAST - Thursday 17 September  Bedford Lodge, NEWMARKET CB8 7BX

SOUTH - Thursday 24 September Norton Manor Park, Sutton Scotney, WINCHESTER SO21 3NE

WEST - Thursday 1 October Ramada Grange Hotel, Winterbourne, BRISTOL BS36 1RP

NORTH - Thursday 8 October Oulton Hall, LEEDS LS26 8HN

LONDON - Thursday 22 October Jury's Great Russell Street Hotel, LONDON WC1B 3NN

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“Excellent value - well presented - Notes very useful for future reference” Barry Adamson, Maclay Murray & Spens LLP

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The Speaker

Matthew Hutton MA (Oxon), CTA (Fellow), AIIT, TEP

Matthew Hutton is a non-practising solicitor (admitted 1979) who has specialised in tax for over 30 years. Having run his own consultancy (latterly through Matthew Hutton Ltd) until 30 September 2000, he now devotes his professional time to writing and lecturing.

Among his publications are the annual Tolley’s UK Taxation of Trusts, Trusts & Estates 2008/09 (Tottel, part of the Tax Annuals series), Tolley’s Tax Planning for Private Residences (3rd Edition 1999) and Post Death Rearrangements: Practice and Precedents (FT Law & Tax 5th Edition 1995). He is also co-author of the looseleaf Stanley: Taxation of Farmers and Landowners (Butterworths). In September 2008 Matthew launched his new eBook Hutton on Estate Planning.

Matthew is the general editor of Private Client Business, published by Sweet & Maxwell. He also writes for other journals.

Matthew has since 1977 been a partner in his family’s farming business and he belongs to the Taxation Sub-Committee of the Country Land and Business Association Ltd. He is a longstanding member of what are now the Succession and CGT & Investment Income Sub-Committees of the Chartered Institute of Taxation (CIOT) Technical Committee (and was Chairman between 1997 and 1999). Matthew is a Member of the Stamp Taxes Practitioners Group.

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