Penalties for Not Declaring Gifts to HMRC

We are all familiar with the “7 Year Rule” wherein for Inheritance Tax purposes (only) if you gift assets or settle assets into a Trust in the 7 years prior to your death the full value of the gift/transfer will remain in your estate when calculating the amount of Inheritance Tax due.

A deceased Personal Representatives (otherwise known as Executors or Administrators) have a responsibility to enquire about and report any gifts made by the Deceased in the 7 years before they died. This will only be relevant if the estate, including the value of the gifts made in the previous 7 years is above the Nil rate band which is currently £325,000.

The Finance Act makes it a responsibility for the Personal Representatives to submit an accurate return to HMRC. The Personal Representatives have a responsibility to make reasonable and accurate enquiries to identify gifts.

The Personal Representatives may be liable for financial penalties, as a result if a failure to declare such gifts results in a loss of tax revenue. HMRC has also noted that the recipient of the gift also has a duty under the Finance Act to report the gift to the Personal Representatives or HMRC.

HMRC considers that the failure to do so is deliberate behaviour which should incur a minimum penalty of 50% of the undeclared tax payable by the recipient of the gift and not the Personal Representatives. Whereas if the gift was declared to HMRC or the Personal Representatives then the estate would be liable for the Tax.

Caselaw has upheld this position.

It is important to keep a correct and accurate record of gifts to assist your executors. Many reliefs can be claimed for gifts made during lifetime, so the more detail you can leave for your executors, the more likely your executors will be able to reduce the inheritance tax payable.

Here at Wilson Browne, we are able to advise on all aspects of Administering an Estate.

If you want to discuss any of the contents of this article with a member of our Private Client team, please get in touch on 0800 088 6004 or fill in the online form, we are all the help you need.