If you have been appointed as an executor under someone’s Will, there may be the temptation to deal with their estate without arranging professional guidance. However, a recent case has highlighted the potential pitfalls of doing this and demonstrates that, if any mistakes are made, the courts will not accept the argument that you were unaware of the correct procedure.
The case of Usher v HMRC
 UKFTT 050 (TC) concerned an appeal by the executors of an estate against an assessment of the deceased’s income tax. The assessment, made by Her Majesty’s Revenue & Customs, requested payment of an outstanding sum of tax, with interest, and also imposed a sizeable financial penalty for the executors’ failure to disclose the correct amount of chargeable income for the deceased.
Originally, when the executors had been dealing with the estate, they submitted a declaration to HMRC for what they believed to be the deceased’s tax liability. They did not receive a response and so, just over a month later, they sent the amount of tax as they had calculated to HMRC and expressed their intention to distribute the rest of the estate.
At this point, the executors failed to follow the correct legal procedure. If they had published a notice confirming their intention to distribute the estate in local newspapers and the London Gazette, they would have been protected from being personally responsible to any creditors of the deceased who had not yet come forward to claim their debts. This would have included the outstanding income tax owed to HMRC.
The executors did not do so, however, and one year exactly after they had sent payment of what they thought to be the correct income tax, they received a response from HMRC stating that a further amount was payable, in addition to the interest and the financial penalty mentioned above.
In appealing the assessment and the penalty in particular, the executors argued that, as they were not legal professionals, they did not know and could not have known that their position could have been safeguarded by advertising their intention to distribute the estate in the London Gazette. They also argued that this should constitute ‘special circumstances’ as, under the law allowing HMRC to impose such penalties, a penalty may be reduced if special circumstances apply.
The Tribunal did not accept this. It was stated that the executors “chose to risk the consequences of whatever shortcomings in their legal or accountancy knowledge there might prove to be” and it was not the purpose or duty of either HMRC or the Tribunal to “relieve [the executors] of the results of their choice to undertake that work without professional assistance.”
Although the Tribunal did not allow the penalty to be imposed in the end, this was largely due to a number of issues regarding HMRC’s conduct. The outstanding income tax and the interest on it were still payable.
Had HMRC’s conduct been found to have been reasonable in this case, the additional financial penalty they imposed upon the executors would also have been payable. The tribunal made it very clear that the executors’ argument concerning their ignorance of the correct legal procedure was unsuccessful.
As a further note, the outstanding tax and interest, even without the additional penalty, still poses a problem for the executors after the hearing. They will need to account for these to HMRC even though the estate has already been distributed. This was another factor which influenced the tribunal in removing the penalty. It was considered that there would be difficulty in retrieving the money which had been overpaid to the beneficiaries of the Will, not least because a number of these beneficiaries were charities.
The Tribunal stated that if the executors had taken on professional assistance in administering the estate and consequently followed the correct legal procedure, the beneficiaries would have been obliged to bear the cost of the extra income tax by receiving smaller sums under the Will. Instead, the Tribunal noted, the executors must now rely on the good will of the beneficiaries to return their shares of the overpayment. Should the executors be unable to retrieve the money from the beneficiaries, the executors themselves could be held responsible for it.
To be appointed as an executor in someone’s Will is to be confirmed as someone they trust to carry out their wishes after death. But it also imposes many duties and obligations when dealing with that person’s estate and naturally at a very difficult time. Even so, if you do not take legal advice and mistakes are made when carrying out your obligations, ignorance of the correct procedure will not be accepted as sufficient justification by the courts. It is for this reason, amongst others, that we would strongly urge anyone in the situation of executor to seek legal guidance as to your responsibilities under the law.