We are dealing with an estate where the deceased was UK domiciled and had an interest in a property in India. He died intestate with three children surviving him. The UK estate passes to the three children equally. We understand that the property interest in India passes to the three children under the Hindu Succession Act.
HMRC have issued calculations for the IHT due on the Indian property. The Administrator of the UK estate (acting under a poa from one of the children) isn’t responsible for the IHT on the foreign real estate. If the tax is left unpaid and interest accrues then it will ultimately lead to significantly more tax being paid overall. However, if the Administrator used UK assets to pay the IHT then the children may receive less as an initial distribution from the estate. It also looks like it may be a long time before the Indian property is sold and they realise their interest in it.
Any thoughts/views on the above welcome.
My understanding is that the personal representative(s) of the estate of a person domiciled within the UK is responsible for IHT on their world-wide estate.
Whilst they may be entitled to claim a credit against the UK IHT for any equivalent taxes payable outside of the UK, that does not absolve them from liability to UK IHT on those non-UK assets.
If I was the administrator, I would be extremely wary of withholding payment of the IHT on the non-UK assets as I believe HMRC may come against the PR personally for payment of the unpaid tax if they hold insufficient to satisfy the IHT bill in full (including any penalties and interest). The administrator will be liable to HMRC up to the value of the estate which has passed through their hands (whether or not they still retain it).
If instructed by the client (i.e. the person from whom the PofA is held) not to pay the IHT and/or to distribute the UK estate, I suggest that sufficient funds should be held back to cover the potential liability, with a significant “cushion” to allow for interest, etc. including costs should the client insist that any claim by HMRC be resisted. I believe that, even should the PofA be revoked, the administrator’s liability will remain by virtue of s.200(1)(c) IHTA 1984.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals