Tax Tribunal upholds IHT penalty against beneficiary of will for deliberately withholding information from executors

The First-tier Tribunal (Tax Chamber) recently considered an appeal by Mr Hutchings against a penalty imposed on him personally under paragraph 1A of Schedule 24 to the Finance Act 2007 in Hutchings v HMRC [2015] UKFTT 9 (TC). The penalty was levied as he was found to have had deliberately withheld important information, when probed by the executors of the will, about a gift from an undeclared Swiss bank account. The case is the first of its kind to be tested in the Courts.


Mr Hutchings was the residuary beneficiary of his late father’s will. Six months before his father’s passing, the balance of the account in question had been transferred from the name of the deceased into another, again undeclared, Swiss bank account in name of Mr Hutchings. This amount therefore constituted a transfer which was relevant to the amount of inheritance tax. As this sum was not mentioned on the inheritance tax return, this resulted in an understatement of tax liability.

Mr Hutchings challenged the legal basis of the penalty, denying he deliberately withheld information. In cross examination, however, he was found to have been evasive, dishonest and unreliable and to have deliberately withheld information about the Swiss bank account. HMRC were also successful in defeating numerous legal arguments raised by counsel for the taxpayer, including an assertion that paragraph 1A required the taxpayer to be under an underlying legal duty to provide information to the executors.

Practical implications

This case serves as a reminder that executors’ enquiries should be responded to honestly, openly and timeously. An individual does not need to positively lie before a paragraph 1A penalty will be imposed. Such a penalty may be issued where someone simply keeps quiet, deliberately failing to disclose relevant information which would affect the accuracy of an IHT return. Importantly, the legislation can also be applied to any third parties, even where they are not beneficiaries of the estate.

Executors should also be reminded that it is key to make thorough enquiries when completing an inheritance tax return. In this case the executors avoided a personal penalty under paragraph 1 of Schedule 24 for filing an inaccurate return, by ensuring that the question of lifetime gifts was appropriately raised on two occasions; by letter and in a face to face meeting. The blame fell instead onto the third party beneficiary who had deliberately failed to provide them the information they had properly requested.

HMRC were represented by Kate Balmer (a member of the Attorney General’s C Panel of Counsel). To read the full judgment, please click here.

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