Category: Uncategorized

 

Essential Principles for Executors when completing an IHT400 return

When applying for a grant of probate, Executors generally complete two declarations.  One is on oath, when the probate application is sworn.  One is the statement to the Inland Revenue of the financial value of the estate for taxation purposes.

 

When completing the IHT400 in a taxable estate, the executors need to be aware that they are making official statements to the Inland Revenue.  These are listed at page 12 (box 119) of the form.  The executors, when signing the form state (in brief) that:

 

a)      They have made the fullest enquiries reasonably practicable in the circumstances and that should any values be estimated, they will inform the Inland Revenue of these as soon as they know it.

b)      That where spousal relief is being claimed, the executors have done their best to ascertain that the deceased was legally married to the surviving spouse

c)      That they understand that they may be liable to prosecution if they deliberately conceal any information that affects the liability to Inheritance Tax arising on the deceased’s death or if they deliberately include information in the account that they know to be false

d)      That they understand that they will have to pay penalties if the account is delivered late or contains false information that they fail to remedy within a reasonable time.

e)      That they understand that the submission of the form does not guarantee that the Inland Revenue has accepted the facts are as stated

f)       That the Inland Revenue may investigate the estate in detail after the Grant of Administration.

 

The executors should also be aware that the new rules on penalties apply to Inheritance Tax, just as much as to Income Tax and any other tax.  Inheritance tax can face penalties of up to 100% of the tax due, depending on the severity of the error in the account  (whether it was deliberate or careless, concealed or without concealment )and what assistance the taxpayer has given to the Inland Revenue to put matters right, and how speedily any error was noticed and rectified.

 

For more information on the penalty regime, please see http://www.hmrc.gov.uk/about/new-penalties/faqs.htm#39

 

 

What is an executor? What is an executrix?

An executor is a legal person (this can include a trust corporation) who carries out the wishes of a person who has died, and is appointed by a Will. If the executor is female, then they may be called an executrix. If all executors are female, then they may be called executrices.

If there is no will, then the people who do the same job as executors can only take authority by order of the court. They are called the Personal Administrators of the estate.

In both cases, collectively Executors and Personal Administrators can be called Personal Representatives (“PRs”).

Sometimes, the Executors of an estate look after assets for others in the longer term. In this case, they can also have the role of Trustees.

Gifts, Tribute and Taxes

In my family, where there are important gifts to be made, gift giving is noted formally, and full notes are kept.  For this purpose, when I’m talking about gifts, I mean a gift of money or items that have a resale value that is relatively substantial – and which has a meaning for Inheritance Tax – since the particular giver (aka donor) is someone who might be expected to have an estate that would suffer inheritance tax on death.

In my own circumstances, where there are children who share one parent, but not both, recording gifts has also been a way of making sure that the pattern of giving is fair.

Fair is a subjective term – of course it is.  Children born earlier may be fully “paid for” by the time a person dies.  Children (and of course grandchildren) born later may not be so.  To keep things fair is a difficult subject.  What is fair to one might not be to another.  What makes judging these things so hard is that usually, no records are kept.

Not in my particular family – largely because my father is very familiar with family disputes and inheritance tax law, having been a succession and tax lawyer for many decades.

Being a person who likes to understand the principle of equity and to practice what he preaches, he has devised a way of making sure that all his children understand the impact of the gifts that have been given over the years and the exemptions that cover each gift, so that in the event of his death, his executors have an easier time of it, and that if there are any disputes (polite or otherwise) between his heirs, at least there are some documents to back up the process.  On the basis that knowledge can give you truth, if not happiness.

If the role of being a child is to learn from a parent, then this is something that I hope to be able to use – in the role of a lawyer learning from another in the same field, I would also like to take this on board. 

And tribute?  That’s the way the family choose to look at an enforced gift – one that has to be made, for social or other purposes.  Like gifts for a wedding…  or gifts on the occasion of an event that is made popular by greetings card manufacturers.  It does have the feel of an individual approaching a tribal leader, laden down with gold and silver, spices and fine goods, to impress or placate.  On reflection, that is rather like the wedding gift table.

Lasting Powers of Attorney: Live or dormant?

Is it better to register LPAs straight away? It’s up to the individual – but on the whole, the PGO might be right. To err is human, and the best way of getting to the right end result is not to test humanity’s weakness.

If we look at the system from a solutions-based viewpoint, then the best way of getting what the client wants or needs might be to get the document registered sooner rather than later. If there is an error that was missed somewhere along the line, then if the LPA is registered early, there is a chance that the donor still has capacity to execute a replacement document. If left until the very last moment – whilst this can still afford protection from attorneys managing your affairs before you are ready for them to – runs the greater risk of all your plans coming to nothing. With no prospect of recovery other than a deputyship application.

Abuses do exist in the system. As do errors. Because there are human beings involved. The most important thing is to focus on the end result. If a mistake has been made, can it be recovered? If an abuse takes place, can the abuse be stopped and the offending person prosecuted. If you want yes to either of those, then the best answer is to register the LPA as soon as possible. And to choose people who you trust (not people of last resort). This gives the widest margin and cushion against abuse or error.

HMRC -v- Hanson [2013] UKUT 0224 (TCC)

I’ve been sent a copy of a judgment to read through – hopefully I will be able to decode it into something slightly more reasonable. If anyone wants to join the bookclub experience, it is [2013] UKUT 0224 (TCC) FTC/44/2012.

So far, I have established that, barring an appeal, this is about IHT, APR, the nexus binding the relationship between a “farmhouse” and the land pertaining to that farmhouse being different from that previously understood.

I am working my way round to simplifying the judgment in my head, but I think the nexus of ownership rests less on the taxpayer being the common owner, and more on the basis of the land being used for a common purpose, so moving towards ownership *and* purpose. But it’s deep stuff, and a cursory read is all I can manage at the moment. Very technical academic stuff.

Fixed fee or by the hour?

Some people think that solicitors charging for their time is a bit old fashioned. There is a huge move towards the commoditisation of legal services – so that, rather like Tesco, you buy something off the shelf. This is greatly to be praised – it means the customer can see what they get and be able to compare services.

The difficulty comes when you compare a retail item to a service and a skill. If you want a T-Shirt, do you get it from Tesco, Gap, or somewhere designer? What is it about the T-Shirt buying experience, or the product that you buy that appeals? The good quality? The cheap item that you need before heading to the beach? The one with the special label that means you are exclusive and/or you look more attractive?

When you think about other trades – plumbers, electricians, mechanics, gardeners – then they also charge for their skills on the basis of how long it will take. Some charge a combination – a call out fee with one hour included.

What’s the worst thing about fees being charged on the basis of the time that is spent? Not knowing where you are. And being faced with a huge bill. And how large a bill depends sometimes on what you are used to. And what you think the job is worth.

I’d like to run a survey – how should your solicitor charge?