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HMRC internal manual

Inheritance Tax Manual

Liability on potentially exempt transfers (PETs): practice relating to personal representatives

The liability of the transferor’s personal representatives (IHTM05012) is a sensitive area of the legislation. You must alert the personal representatives at an early stage where recourse to them might occur. In cases where the transferee (IHTM30051) is not resident in this country we are likely to be aware of that fact from the replies on the schedule IHT403, but nevertheless we should still warn the personal representatives of their potential liability, failing payment by the transferee and any other persons who may be liable under IHTA84/S199 (1).

Similarly SAV should be alert to any valuation in which it is evident that the value of the property transferred is far less than the value transferred and where tax will be payable on the gift. SAV should give a warning to this effect as soon as possible to whoever issued the valuation request and it will then be their responsibility to decide what further action to take.

You must remember that the facility to have recourse to the transferor’s personal representatives is not to be regarded as a soft option. We are to make all the attempts at recovering from the persons liable under IHTA84/S199(1) that we would presently contemplate in a similar situation against any liable person. But having warned the personal representatives that we may look to them to discharge the tax liability, we must ensure firstly that they are kept fully in the picture and secondly that a decision actually to collect from them is not delayed for years.

The Law Societies of England and Scotland have expressed concern about the liability of personal representatives under IHTA84/S199 (2). In response HMRC have indicated that we “will not actually pursue for inheritance tax personal representatives who
 

  • after making the fullest enquiries that are reasonably practicable in the circumstances to discover lifetime transfers, and so
  • having done all in their power to make full disclosure of them to the Board of HMRC

have obtained a certificate of discharge and distributed the estate before a chargeable lifetime transfer comes to light.

This statement of the Board’s position is made without prejudice to the application in an appropriate case of IHTA84/S199 (2) Inheritance Tax Act 1984.”

The quotation is from letters sent to the two Law Societies on 6 February 1991. It was published in the Law Society’s Gazette dated 13 March 1991, page 17.

Note that tax collected from personal representatives of the transferor under IHTA84/S199 (2) was never a liability of the transferor. Accordingly IHTA84/S5 (4) cannot apply and
 

  • the tax so collected is not deductible against the transferor’s taxable estate and
  • there is no question of grossing up (IHTM14593) the lifetime transfer.