HM Revenue and Customs (HMRC) opened a staggering 5,537 Inheritance Tax investigations in the 2018-2019 tax year, which is a 3.4% increase in comparison to the previous 2017-2018 tax year. To put this number into perspective, this equates to nearly a quarter (23%) of the 22,000 estates where Inheritance Tax is due. With such an incredibly high proportion of estates affected, it raises concerns about whether those responsible for paying Inheritance Tax are aware of the risks if they make mistakes.

The role of an Executor or Administrator: Risks and responsibilities

Personal Representatives (Executors if there’s a Will or Administrators if there’s no valid Will) are responsible for administering someone’s estate when they pass away. This includes handling all the paperwork and paying the correct amount of Inheritance Tax, as well as dealing with assets, paying debts, handling Income Tax and transferring the inheritance to beneficiaries.

The role of an Executor or Administrator is not to be taken lightly as they have a legal and financial duty to ensure everything is dealt with correctly and in a timely manner. Among other responsibilities, they’re personally liable for the correct distribution of an estate, responsible for maximising the estate for the beneficiaries, and accountable if there are any errors on the Inheritance Tax return.

Many people are unaware of the risks and responsibilities that come with the role. A case reported by The Telegraph last year highlighted the serious repercussions that can occur when mistakes are made. A Personal Representative distributed an estate to the beneficiary as he was under the impression that the beneficiary would pay the Inheritance Tax bill. However, the beneficiary left the country leaving the Personal Representative to foot the £345,000 bill. This is a severe example, but it does highlight how Executors or Administrators need to ensure that the estate is administered correctly.

Simplifying Inheritance Tax

These new figures have come to light soon after the Office of Tax Simplification (OTS) revealed their recommendations to simplify Inheritance Tax. The OTS explored how the administrative and technical aspects of the tax could be improved after the Chancellor requested the review in early 2018.

The OTS followed a consultation process that received an unprecedented amount of interest and the findings have been outlined in two reports. The first report was published in November 2018 and looked at the administration of Inheritance Tax. The second report was introduced in July 2019 and explores the key complexities and technical issues surrounding how the tax works.

It is yet unclear how the government will implement the proposed changes if they take on board the recommendations, however, the high number of Inheritance Tax investigations further supports the need to make the tax clearer and easier to understand.

Source: Kings Court Trust

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