The risks and responsibilities of an Executor or Administrator: How to avoid a hefty Inheritance Tax bill

A recent article from the Telegraph revealed how a personal representative was left with a staggering Inheritance Tax (IHT) bill of £341,278 when he was administering a £1.2 million estate. Mr Harris misguidedly distributed the assets to the beneficiaries before all of the Inheritance Tax had been paid. He did this with the understanding that one beneficiary (who received the majority of the estate) would pay any Inheritance Tax that was still owed. However, this did not happen as the beneficiary left the country without paying, leaving Mr Harris to foot the bill.

In this case, Mr Harris was personally liable for paying any Inheritance Tax that was due on the estate, as he had taken on the financial and legal responsibility for the estate when he became the administrator in 2013. Mr Harris was appointed to distribute Helena McDonald’s estate by the court when she died without a Will.

When a Will has been left, a chosen Executor is stated and if they choose to accept the role, they will have this same financial and legal responsibility. Executors and administrators are by no means obliged to take on the responsibility. They have a choice of whether or not to accept the role, the right to seek advice from a professional, and can even ask a professional estate administrator to manage the estate on their behalf.

Mr Harris attempted to appeal his responsibility to pay the £341,278 owed to HM Revenue and Customs (HMRC) on the grounds that he no longer holds the estate’s funds. Harris’ attempt was unsuccessful as Judge Nicholas Aleksander rejected the tax appeal, stating that “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.”

He added, “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.”

This case highlights the lack of understanding amongst the public about what to do when someone dies and more specifically, the liability that is associated with administering an estate. Incorrectly distributing the assets or making mistakes whilst handling the estate can be of great consequence, as highlighted in Mr Harris’ case.

At Kings Court Trust, we believe that executors and administrators need to be more aware of their responsibility when it comes to administering the estate. Estate administration can be extremely complex no matter the value of the estate so we advise using a safety net by putting the estate in the hands of experts, preferably someone who will take the legal and financial burden off your shoulders. 

Kings Court Trust are one of the UK’s leading estate administration providers and we’ve helped thousands of families receive their inheritance. We take care of absolutely everything within the estate administration process and take the legal and financial responsibility off your shoulders and put the onus on ourselves. If you have any questions regarding estate administration, call our Client Services Team on 0300 303 9000 for free guidance and advice.

Source: https://www.telegraph.co.uk/tax/inheritance/executor-left-hook-340000-inheritance-tax-bill-beneficiary-fails/