Dealing with the estate’s finances

One of the most important tasks for the executor is dealing with the estate’s finances.

It may be, as part of this process probate/letters of administration will be required. This will involve a return to the Revenue either on an IHT 205, which provides a brief summary of the decease’s assets and liabilities or on an IHT 400 which requires a more detailed account of them.

When it comes to obtaining probate, the executor can, of course, choose to use a solicitor. However this may be regarded as unnecessary and expensive. When dealing with the estate’s finances DIY probate may be preferred; application forms can be downloaded from HMRC and guidance notes are available online.

However, where executors choose to apply for probate themselves it is important to recognise that they have duties and responsibilities and are personally responsible for any mistakes they make when calculating or paying the Inheritance Tax.

When completing the IHT return, the executor must ‘take reasonable care’. Mistakes can be picked up by HM Revenue & Customs and this could result in not only extra tax becoming payable but also a penalty charge as well.

Any penalty charge is calculated as a percentage of the extra tax payable as a result of the inaccuracy. (This is called the ‘potential lost revenue’ PLR). The amount due depends on how the mistake occurred and whether the executor told HMRC about it or they found about it themselves.

Type of behaviour        You told HMRC               MRC found the error
                                     (Unprompted disclosure’)    (‘prompted behaviour’)

Reasonable care                     No penalty                                   No penalty
Careless                                         0% to 30%                             15% to 30%
Deliberate                                     20% to 70%                          35% to 70%
Deliberate and concealed          30% to 100%                           50% to 100%

In general, HMRC are looking more closely at Inheritance Tax returns and the basis of how valuations are arrived at. When dealing with the estate’s finances, it is important for personal representatives to obtain correct information to include in the IHT return. For property valuations HMRC recently issued new guidance strongly advising personal representatives to instruct professional valuers.

Similarly, care should be taken when valuing possessions such as furniture and household items, goods and chattels. Any item over £500 in value need to be included separately on the inheritance tax form. Items below this amount are usually lumped together and a total given. it is important to give a realistic valuation as HMRC will sometimes do spot checks. Also ,since 2010 they have had the ability to cross reverence a number of sources such as bank accounts, company ownership, property transactions, PayPal, Amazon etc to give them a better understanding of the deceased’s situation.

When dealing with the estates’s fiances executors should be entirely comfortable about their responsibilities and confident in their ability to complete the required paperwork both to obtain probate and administer the deceased’s estate.

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