I am dealing with an estate which includes a property which was held as joint tenants by the deceased and another person - which therefore passes outside of the Will to the surviving joint owner. Said surviving joint owner is not otherwise a beneficiary of the Will, and therefore it might be difficult to get them to agree to pay the inheritance tax due on the property (as it cannot simply be deducted from any cash that might be due to them). I understand that in such cases the executors are secondarily liable to pay the tax, but what are the implications of this in practice? In particular, if the executors do pay the tax out of estate funds because HMRC demands it and the surviving joint owner won’t pay:
(1) Can they pay the tax out of the residue of the estate? and
(2) Given that we believe in such a case the tax would not be deemed a testamentary expense, would the other beneficiaries have any recourse against the executors for the tax paid if the executors were unable to obtain reimbursement from the surviving joint owner?
IHTA 1984 s 200 sets out those who are (concurrently not, I believe, secondary) liable to account for IHT on death.
The PRs are so liable wrt IHT on a deceased’s so-called “free estate” including any jointly held property of the deceased. However, as in this case the deceased’s interest passes by survivorship, any IHT payable is not a testamentary/administrative expense [s 211] but the PRs under s211(3) may require the surviving joint tenant to reimburse them.
If there is no other property being left to the surviving joint tenant I’m not sure how the PRs can force the tenant to reimburse the attributable IHT. I’m also not sure how s212 is of practical help.
If the PRs are liable (which they are) and discharge the IHT I can’t see how the other beneficiaries have any legal recourse against the PRs.
When I have come across this situation in the past, I have generally recommended that HMRC be asked to assess the survivor direct for the IHT on the assets passing by survivorship.
I would not recommend that the executors pay the IHT unless it is assessed on them by HMRC (which HMRC can do if unpaid 12 months after death), as there can be no certainty that the funds will be recovered from the survivor in joint account. If the payment is made “voluntarily” the beneficiaries entitled under the will could assert that such payment was made in breach of trust and require the executor(s) to reconstitute the estate, and seek to recover from the survivor in joint account at their own expense.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Since my post earlier today, Malcolm Finney and I have exchanged views and agreed that my reference to a period of 12 months in relation to IHT on former joint property has no statutory support – perhaps HMRC was only being kind when that was discussed a few years ago.
However, when the situation in question does arise, I do generally recommend that HMRC be asked to assess the survivor direct for the IHT on the assets passing by survivorship (and this does happen). If the PRs pay the IHT then, as Malcolm says, they can recover this from the survivor – s.211(3) IHTA 1984 sets out the right of recovery. If need, they could initiate an action for recovery, although would need to be conscious of the cost implications of litigation. If litigation were to be considered necessary, the PRs should also consider asking the beneficiaries of the estate for an indemnity against the costs incurred.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I find this question of great interest, particularly the relationship of jointly held assets.
From IHT404 in part reads - Jointly owned assets where all the money was provided by the deceased Sometimes assets may be owned jointly with another person, but one person provided all the money, either in an account or to buy an asset. For example, an elderly person who has difficulty getting out, may add the name of a relative to an account for convenience so the relative may draw out money on the elderly person’s behalf. If the person who provided all the money dies, then their share of this account will be the whole. But if the other joint owner has withdrawn money for their own use, those withdrawals may be gifts and you may need to include them on form IHT403, ‘Gifts and other transfers of value’. It follows that if someone died with their name on a joint account but they did not provide any of the funds, no part of the account need be included in the estate unless the other joint owner intended to make a gift to the deceased.
Would one therefore need to establish how the property in question was purchased to understand where tax liability may rest?
Thank you all for your replies, which have given us a lot of food for thought. As an added complication, the jointly owned property is in Australia, which makes reimbursement more difficult. It seems like the key question is where HMRC assess the tax on the surviving joint owner, and given that they are in Australia it seems unlikely HMRC would be satisfied with doing this.