Heavy penalty for undisclosed lifetime gift

Businessman and father Robert Hutchings had died in October 2009, leaving an estate which was worth at least £3million.

Hutchings was a father-of-five, but his final will disinherited two of the children. A further two were left legacies of £150,000 and the residue went to the fifth child, Clayton Hutchings.

The executors wrote to the family beneficiaries, specifically asking if they had received any gifts during the final seven years of their father’s life. No disclosures were made and the executors duly submitted an IHT400 form.

Almost two years had passed, when HMRC received an anonymous tip-off that Clayton had an undisclosed offshore bank account. It emerged that six months before he died, Robert had transferred almost £450,000 out of his own Swiss account and into Clayton’s.

The discovery led to the tax authority claiming an additional £47,000 in Inheritance Tax (IHT) and a 65 per cent penalty on the potential loss of revenue.

Clayton had paid the additional IHT bill, but had appealed against the penalty on the grounds that he hadn’t deliberately withheld information and that his father’s solicitors hadn’t made it sufficiently clear that he must declare all lifetime gifts.

However, a first-tier tribunal dismissed the appeal on the grounds that the executors had asked questions both in person and in formal correspondence. The case, which was the first of its kind, has emphasised the importance of individuals responding honestly to executors’ enquiries.

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