HMRC - instalment payments on account - needing some of the funds back

Trusts Discussion
1

My colleague is in a little bit of a tizzy,

We have an estate that had an investment portfolio and a property as its principal assets. The executors instructed my colleague to have the portfolio encashed and have the broker send all the funds directly to HMRC – this included a payment of almost 7.5 instalments as well as tax on the non-instalment options. In the current property market the executors are not planning on selling the property at this stage – we can’t shift any of the other probate properties we have on the market despite dropping the asking prices.

My colleague has realised that she forgot to retain c. £50k for legacies, which is a drop in the ocean compared to the monies paid to HMRC. She approached HMRC to see if she could get some of the instalment money back, to which they replied that they only have to do it at their discretion.

Does anyone know the precedents under which they will exercise their discretion in these circumstances?

Miriam Spero
Rubenstein Phillips Lewis Smith

2

If that was the executors instruction then I would say not to try and get the money back from HMRC at all. Inheritance tax should always be settled before any estate distributions are made and, in any event, if the beneficiaries do not receive their legacy until one of the properties has sold then so be it. Worst case scenario, if it goes longer than 12 months then they are entitled to receive interest on the legacies (which i believe is the princely sum of 0.3%!!!) however, the interest charged by HMRC on outstanding IHT is 3% so it is prudent to make payments towards reducing the inheritance tax liability as it will cost the estate less in the long run.

Personally, I would never make any distributions from an estate (legacy or otherwise) until I was sure that all the liabilities had been discharged and I would suggest your colleague adopt the same stance.

Gemma Van Duke
Bishopsgate Law