The December issue of the Trusts and Estates Newsletter sets out HMRC’s view on penalties for incorrect declarations of prior gifts on estate returns and is well worth reading in the light of the Upper Tribunal decision CRC v Hutchings  UKFTT 9 (TC) (12 January 2015).
Primarily, it is the personal representative who is responsible for making an accurate return to HMRC under Schedule 24 Para 1 Finance Act 2007. It is therefore the responsibility of the personal representative if they do not report gifts or do not make adequate enquiries to identify gifts. If inaccuracies result from their failure to take reasonable care to make a complete return, then tax-geared penalties may arise based upon the underlying potential lost revenue caused by that failure.
In some cases, the underlying behavior that led to the under-declaration of tax is not due to the personal representative, who may well have taken all reasonable steps to complete the return correctly. The error may instead be attributable to the person who received the gift from the deceased, by failing to tell the personal representative about the gift.
There is an obligation on the recipient of the gift to report it Schedule 24 Para 1A Finance Act 2007. The operational approach of HMRC in these circumstances is that failure to tell the personal representative of any such gifts and failure to report the gift will be considered primarily as deliberate behaviour. The minimum penalty in these circumstances is 50% of the tax undeclared and could be up to 100% of the undeclared tax. Importantly, the penalty in these cases is payable by the recipient of the gift, not the personal representative.
Personal representatives may want to consider warning those who might have received gifts of the potential consequences of failing to disclose details of the gifts they received. They may wish to refer to CRC v Hutchings when doing so.
The newsletter and the full text may be found at – https://goo.gl/HljA0g