Analysis
Robert James Hutchings (‘deceased’) owned a farm in West Sussex, from which he operated a number of businesses, valued at his death at about £3m. He had an offshore bank account with Julius Bär in Switzerland and, approximately six months before his death, authorised a transfer of the balance to the appellant. The sum transferred was £443,669.00. The appellant was also principal beneficiary under the will of the deceased, who died on 14 October 2009. The executors, who were a solicitor and a land agent, met with members of the family on 29 October 2009 during the course of which they were requested to disclose any lifetime gifts. This was followed by a letter dated 19 November 2009 in which it was explained that the executors had a duly to investigate lifetime gifts for the purpose of paying inheritance tax and that they needed to know of any gifts which were made by the deceased during the last seven years. The appellant did not reply to this letter and, when the executors submitted the inheritance tax account on 25 March 2010, it made no mention of the offshore bank account held by the deceased. Subsequently, HMRC received anonymous information as a result of which they wrote to the appellant and his accountant on 19 July 2011 to the effect that they had reason to believe that he held an offshore bank account. A similar letter was sent to the executors and, following the appellant’s disclosure of its existence, they wrote to HMRC on 21 September 2011 explaining that they had made enquiries with the family but had not been supplied with any information about lifetime gifts. The executors said that they had been seriously misled about this gift. The appellant, being the donee, was chargeable to £46,995.90 inheritence tax (after allowing for the nil rate band of £325,000) and, as a consequence, the executors were chargeable to an additional inheritance tax liability nearly three times the amount assessed on the appellant. HMRC wrote to him on 14 March 2012 indicating that they intended to charge a penalty of 35% of the ‘potential lost revenue’. On 28 September 2012 they revised the percentage upwards to 65% but, following a review dated 18 December 2012, reduced it to 50%. This amounted to £87,533.80 – the maximum possible reduction for prompted disclosure. The appellant appealed.
Held (dismissing the appeal):
There was no doubt that the inheritance tax account contained an inaccuracy which led to an understatement of the liability to tax but HMRC did not levy a penalty on the executors as they considered that the inaccuracy was not due to their carelessness or deliberate behaviour. Instead, in accordance with para 1A of Sch 24 to the Finance Act 2007 they levied a penalty on the appellant because they considered that the inaccuracy was attributable to him deliberately withholding information from the executors with the intention of the inherence tax account containing the inaccuracy. HMRC bore the burden of proof on a balance of probabilities and, on the basis of the evidence, the executors’ failure to include the lifetime gift in the inheritance tax account was indeed attributable to the appellant because he had failed to answer their question whether he had received a gift from the deceased. In this respect, HMRC did not need to prove a preexisting duty on the appellant to inform either them or the executors of the existence of the offshore bank account in order to show that he had withheld information about the account. The appellant, being the person directly liable to pay the tax on the failed potentially exempt transfer, was already under a duty to account to HMRC. The appellant’s inconsistent and incompatible explanations for his failure to disclose the existence of the account reinforced the conclusion that he chose not to tell the executors about it as he wished to avoid paying inherence tax on the lifetime gift and this amounted to a deliberate withholding of information from the executors with the intention that the inherence tax account should not contain details of the lifetime gift. Accordingly, the prerequisites to the imposition of a penalty were met and it was not necessary for the assessment to be to ‘best judgment’. The quantum was neither wrong nor out of time. Moreover, the appellant could not ask for a greater reduction than he had already been allowed because there were no special circumstances.
JUDGMENT MOSEDALE J: [1] Mr Timothy Clayton Hutchings (known by his second name Clayton) appeals against a review decision dated 18 December 2012 in which HMRC upheld the issue on him of a penalty under para 1A Sch 24 to the Finance Act 2007 (FA 2007) reduced after review to the sum of £87,533.80. Background …Continue reading "Hutchings v HMRC [2015] UKFTT 0009 (TC) On appeal from: TC/2013/00644"