Estate Administrator Held Liable for £340k Inheritance Tax Bill
20 June 2018
If you act as a Personal Representative (Executor / Administrator) of an Estate, it's essential to understand what this role entails and what the responsibilities are. You can be held personally liable for any mistakes that you make even if these are genuine errors, as one Administrator's cautionary tale demonstrates.
Administrator Ordered to Pay a £340k Tax Bill
Glyne Harris acted as the Personal Representative on the £1.2m Estate of his late friend, Helena McDonald. Mr Harris decided to carry out the work himself instead of seeking legal advice, but he did not fully understand the Probate process or what his obligations were.
Mr Harris completed the Inheritance Tax form and paid the initial amount due. A significant amount of the Estate's value was tied up in land, meaning the rest of the Inheritance Tax didn't need to be paid straight away.
Once the land had been sold and the money was in the Estate account, Mr Harris paid the main Beneficiary the bulk of the money, assuming that this was the correct thing to do. However, he had not yet settled the remaining Inheritance Tax bill.
Mr Harris has argued that he thought the Beneficiary would settle the bill out of the inheritance he received. Unfortunately for Mr Harris, the Beneficiary had other ideas and jetted off to Barbados instead. The Beneficiary can no longer be contacted and Mr Harris has been told that he is now personally responsible for paying the outstanding £341,278.76 to HM Revenue & Customs (HMRC).
Mr Harris has appealed this, saying that he can't pay the outstanding bill as he doesn't have the Estate funds anymore and he shouldn't be liable. The Judge disagreed, rejecting Mr Harris' appeal and saying that he is liable to pay the outstanding amount.
In his ruling, the Judge explained that it was not "a defence that Mr Harris was ignorant of his obligations." He stressed that the laws around Inheritance Tax are clear and the Personal Representative is responsible for ensuring that Inheritance Tax is paid.
Essentially, the fact that Mr Harris didn't understand the Probate process doesn't prevent him from being held accountable. It seems that this was a genuine error, but nonetheless Mr Harris remains responsible for paying the outstanding bill.
HMRC could now lay claim to Mr Harris' personal possessions, including his money, his car and even his home, to cover the £340k bill.
With our Fixed Fee Probate Service we take full responsibility for getting Grant of Probate and dealing with the Legal, Tax (excluding VAT), Property and Estate Administration affairs.
Understanding the Risks
If you find yourself responsible for administering the Estate of someone after they have died, and you intend to deal with the Estate administration yourself, it's essential that you completely understand what this means before you take on the role. Acting as an Executor or Administrator is a complex and time consuming task which carries a significant amount of responsibility.
There is a lot of complicated legal, tax and administrative work to be carried out during the Estate administration. The amount of work required will vary depending on the complexity of the Estate but the process usually takes 9-12 months. For larger, more complex Estates, this timescale can be much longer.
Amongst other things, you will be responsible for:
- Calculating Inheritance Tax, Income Tax and Capital Gains Tax, paying any tax that's due and dealing with HMRC
- Applying for a Grant of Representation
- Locating all of the Estate's assets and selling or transferring these
- Paying off any outstanding debts
- Dealing with any valid claims that are made against the Estate
- Locating and contacting all of the Beneficiaries
- Distributing the Estate to the Beneficiaries in line with the terms of the Will (if there is one) and inheritance laws.
If you make any mistakes along the way, then you can be held personally responsible for these mistakes, just as Mr Harris was.
If you aren't totally confident in your ability to carry out this work yourself, it's a very good idea to instruct a Probate specialist to help you. At Co-op Legal Services our Fixed Fee Probate Complete Service takes full responsibility for carrying out all of this work on your behalf. We also take on all of the liability, meaning that there would be no risk of you ending up in the same situation as Mr Harris.
Co-op Legal Services is the largest provider of Probate and Estate Administration services in England and Wales, trusted to deal with over £1.3 billion in Estates annually.