How Would They Know?

HappyScotsman

I have a bit of an issue.

My sister and I are both executors and residual beneficiaries for our late mother. There will be an IHT bill to pay, and there is easily sufficient cash to pay it. As I have been digging through my mother's papers I have discovered bank accounts she had long since forgotten about. The banks have the collective attitude of if it's above a limit, they'll only pay out after Probate, below and they'll push it into the Exor a/c and be done with it.

I am handling the IHT400 since it's just adding up and taking away and lots of paperwork. Nothing tricky has arisen so I expect to submit by the end of July.The Exor a/c is in my sole name which was done on the advice of the bank. If it needs to be converted into an official Exor a/c, it's just a couple of forms to fill in. My sister lives abroad so having her involved at arms length is a blessing as she would hold a world record in procrastination if she got round to filling in the application form.

Now my sister has been questioning me about how HMRC find out if I'm being honest. If Bank of Midshires were happy to deliver money into my account, how does HMRC know? What stops me from "forgetting" about it when I'm totting up the cash? How do they know I'm declaring all of the money and assets? 

I can see what she's after and I don't like it. I've told her that it is our duty to settle mum's affairs, and that includes paying whatever is due. Thankfully from my reading of the IHT400, it doesn't need to be signed by both of us, just me

Death seems to bring out the worst in some people.

But it did get me thinking. There doesn't appear to be any link between financial institutions and HMRC so it does depend on honesty. Even the declaration broadly says "I promise I did my best and I know you'll come after me with a big stick if you find out I was fibbing". Or am I wide of the mark?

pjcox2005

Tax in the UK is done by self-assessment so it is (as you are willing to do) on you to get it right.

HMRC potentially won't discover any wrong doing, particularly with resources stretched in Covid but they could potentially in a number of ways:

- Random check and request of supporting information, then finding where an "error" hasn't been concealed properly or they look at an account which received all the money.
- A tip off from an annoyed relative or friend if it's been mentioned to them.
- Information previously disclosed on the deceased tax returns (although I expect lower risk on small pots of money)
- Or in some cases electronic file sharing from institutions

On the last point it's fairly unlikely but can happen, for example, there is a common reporting standard which means 100+ countries share foreign bank account information with HMRC.

The other deterrent is the risk of penalties (or higher) if it's consider deliberate evasion. Penalties can be 100% of the tax, which is why HMRC had reasonable success with the voluntary disclosures when people were aware foreign account information was being shared.

Mainly we go back to the first point though of morals and being willing to sleep easy. 

Technosaurus

Hi HappyScotsman - the old "what would I do if nobody found out" dilemma is more to do with somebody's moral compass than anything else - as you surmise, Death (and, more to the point, Money) brings out the worst in some people.

If everyone took the attitude of 'how are they going to find out' with HMRC, then we'd soon be in a right old mess. The likelihood is that they won't find out of any misdeeds, but would you really want that on your conscience?

And if you did get caught, is it really worth being dragged through the courts and most likely getting a criminal record for the sake of a bit of tax when inheriting a reasonable sum anyway (if IHT is in play one assumes the estate is not exactly small change in the first place)?

Some people seem to think tax is a big game where if you're clever you can somehow "win" and "beat 'The Man'". And maybe many people do - not just the big poster boys of "tax avoidance" but normal everyday folk going around looking to dodge the system. But these people are usually the first to moan when there's less police on the street, or the bins don't get collected, or when the Hospital cancels their appointments due to lack of staff. Inheritance tax especially seems to attract the "well it's my money, the government shouldn't get it" brigade even though it's not their money at all, it's their parents' cash!

It's just a mindset that some people have, sadly. You're doing the right thing by playing it with a straight bat.