An essential part of any executor’s job is to work out the assets and liabilities of the estate that they are administering. An executor also owes a statutory duty to HMRC to correctly report the value of the estate to it so that, if any Inheritance Tax is due on the estate, the right amount is paid.
The job of the executor is made more difficult because the Inheritance Tax rules require gifts made in the seven years prior to death to be brought back into account. However it’s not uncommon for an executor to know next to nothing about the deceased’s personal finances, let alone what gifts the deceased has been making and to whom. This can be a real problem for executors because if the executor reports to HMRC that there have been no gifts but HMRC is able to produce evidence of gifts having been made, the executor may receive a tax geared penalty, calculated with reference to the potential tax forgone if the gift had remained undiscovered, which the executor is personally liable for. So how much detective work does an executor have to do to avoid any risk of getting a penalty for undeclared gifts?