Executor is left on the hook for £340,000 inheritance tax bill after beneficiary fails to pay
People left to manage the estates of friends and family could find themselves facing hefty inheritance tax bills after a court ruled against a man who mistakenly left himself to pay off £340,000 in death duties. Glyne Harris ended up owing the taxman hundreds of thousands of pounds after discharging the assets of an estate on what he claims was the understanding that the beneficiary would pay the inheritance tax (IHT) owed. But the beneficiary left the country for Barbados without paying the tax bill, leaving Mr Harris to cover the cost of his mistake.
Executors and personal representatives such as Mr Harris are personally liable for paying any inheritance tax due, even if they are not a beneficiary of the estate. Mr Harris challenged this but his appeal was rejected by a tax tribunal.
Although incidents of this scale are rare, experts have warned that many people are unaware of their legal and financial obligations when dealing with the estates of the deceased.
Rachael Griffin, of Old Mutual Wealth, said: “Many people take on roles as estate executors because they are a family member, but they simply don’t understand the potential implications of what they’re doing. This case is a stark reminder of how complicated this process can be.” Mr Harris became the personal representative of Helena McDonald’s estate in 2013. As there was no will, Mr Harris was appointed by a court and became responsible for distributing the assets of the estate.
He then filed an inheritance tax return to HM Revenue & Customs and paid the initial taxes due. However, as the estate included land, the remaining balance owed to the taxman did not need to be paid upfront. The majority of Mrs McDonald’s £1.2m estate was given to a single beneficiary, on the understanding, Mr Harris claimed, that he would settle the estate’s tax bill.
However, the beneficiary travelled to Barbados, where he lived, and did not pay the death duties owed. Mr Harris was unable to make contact with him and was left solely responsible for paying the £341,278.76 owed to HMRC.
Mr Harris launched an appeal, claiming that he no longer had the estate’s funds needed to pay the outstanding bill and should not be liable for it. However, Judge Nicholas Aleksander rejected this in the tax tribunal late last year. Details of the ruling were released only recently.
Judge Aleksander said: “IHT is clear. It is the personal representatives of the deceased (in this case, Mr Harris as administrator) who have the obligation to account for any inheritance tax arising in respect of the deemed transfer on death.
“It is no defence to any inheritance tax determination that Mr Harris may have transferred the assets of the estate to a beneficiary on the basis that the beneficiary would be responsible for payment of the inheritance tax due.
“Nor is it a defence that Mr Harris was ignorant of his obligations, as a personal representative, to pay the inheritance tax owing.”
An estate’s executor is liable for death duties if money is released to heirs before tax is paid, says Adam Williams
This case highlights the difficulties faced by estate administrators, particularly when there is no will.
Mrs Griffin called this a cautionary tale for others in this position.
“Mr Harris was appointed as the personal representative and filled in the inheritance tax forms, but he has made the payments to the beneficiary on the condition that they would pay the tax due,” she said.
“The beneficiary appears to have disappeared and Mr Harris has been left footing the bill. However, he has no proceeds because he has already passed them on.
“Potentially the Revenue could go after his own personal assets. He could have a house which is up for grabs because he has to pay this money. Mr Harris is on the hook.”
Suzannah Farnell, a solicitor at Progeny Private Law, said many
Island retreat: the main beneficiary of the deceased’s estate left for Barbados