'Elephant in the room' question re IHT !

loiner

If a deceased person has made a gift in excess of the annual exemption less than 7 years before death, how does HMRC find out? Do they trawl through their bank movements? An executor might not be aware of the gift.

user1977

If HMRC can find out about it, why can't the executor?

loiner

What I'm asking really is does HMRC, as a matter of course, trawl through all deceased persons financial accounts?

user1977

loiner said:

What I'm asking really is does HMRC, as a matter of course, trawl through all deceased persons financial accounts?

I don't see why they'd be any more likely to do it for IHT than for any other sort of tax. But I don't know whether they only do it where something piques their curiosity, or if they also do so at random.

Why are you wondering?

loiner

It's just one of those things that I never understood ... to quench my thirst for knowledge 

Keep_pedalling

They would not need to through anything, such a large discrepancy between the declared probate value and previous net worth is likely to be automatically flagged up. HMRC have visibility of your savings, so a sudden six figure drop is going to stand out like a sore thumb.

Not keeping gift records for your executors is idiotic and likely to create a lot of unnecessary work and a potential challenge from HMRC, something they don’t deserve. 

uknick

When I did my ACCA taxation studies about 30 years ago, this question came up.  The lecturer, who had written the text book for the course, so one assumes she knew what's what, answered they'll never know unless you tell them.

But, that was then and things have moved on immensely with regard to what information HMRC have on you so I would always be honest with them.

Having said that I'm not sure HMRC would ever investigate, or even have the resources to do so, unless there was a major red flag in the IHT return.

As an example of them not checking, the executor of my mother's estate, my sibling, told them there was a significant loan, just less than £100k, owed to them from her estate thus reducing the IHT due.  HMRC never asked for any paperwork supporting the loan.  All the executor had to prove the loan was a signed statement from another family member saying the loan existed.  I was surprised this wasn't checked as we are talking about £32k of IHT not being paid due to the loan.

castle96

I wonder re this as well. The temptation to 'save' tax must be overwhelming (though a risk {plus a fine?})

uknick

castle96 said:

I wonder re this as well. The temptation to 'save' tax must be overwhelming (though a risk {plus a fine?})

If they could prove the executor knew about the gifts, I think it would become tax evasion which can result in a custodial sentence.  But, to get a sentence you would have to be really, really stupid and not cooperate with HMRC.

NannaH

An executor surely couldn’t be expected to know, for example,  that the deceased had a non interest paying bank account 5 years ago that was emptied / gifts given and closed?   There might be no evidence of it ever existing. 

silvercar

I know of 2 very elderly people who died in the 90s, who literally had kept relatively large sums of money under their mattress. One of them for definite, was just divied up between family members.