does HMRC routinely check bank accounts on deceased people?

[butterflyballs]

Do the HMRC check bank accounts of a person who has died if the account had been run by a member of the family (who was the sole beneficiary of the estate) for that person?

Say Bob has a disability and can't deal with finances. Bob hands over everything to his daughter to run for him. She pays for carers, bills etc from his account and also pays for any medical supplies from it. She also does care for him and he in return pays her water bill as payment.

When he dies she is the sole beneficiary of the estate which includes several properties and some cash.

Would HMRC then go through the account of Bob and demand receipts for every payment since the daughter took over the finances?

Is this normal?

I can't imagine why they would want to do that. Do you mean in case he owes tax? They are only concerned with tax and wouldn't ask anyone for every single receipt - they'd be there all day!

It would be up to the recipient to notify HMRC if she had extra income, eg from an inheritance, which was taxable.

No they don't, routinely. But if Bob's daughter has PofA she should keep all receipts. HMRC can and will check accounts if there's any red flag on the IHT form, or if the estate is insolvent and a creditor raises a query about the account.

Bob has died and the DD has inherited everything. There are no creditors but apparently HMRC say that there is £40k tax owing as the DD can't prove what the money was spent on over the last four years. They are asking for receipts and proof of what the money has been spent on.

I am not Bob's DD. However, I do know her and I am confused. She is the sole heir. She claims to have no money and to be broke because the HMRC have demanded this money. She doesn't work, her partner works 9 hours a week. They have 3 dc and Bob obviously didn't work for multiple years to his death.

This isn't a normal thing then?

Assuming she has had a letter from HMRC, what EXACTLY does the letter say?

How many properties did she inherit and what were they used for before Bob's death?

Three properties. One Bob lived in. One she lives in. One rented out. Currently one standing empty, two lived in (with one being rented).

I'm not sure what the letter says. She just told me she is absolutely broke, that HMRC are investigating Bob's accounts and unless she can prove all the money gone from the account has been spent on Bob or his care then she will have to pay this money. So she's trying to find receipts for things but it's unlikely she will find everything and I'm sure that her dad was paying things like her council tax, water, gas bills etc as she wasn't working due to being his carer a lot of the time.

She received £6k in rent in April and says she doesn't have this money anymore. That it's gone into her dad's account but her dad died months ago.

I assume that the estate is liable for inheritance tax (IT) and they will ask about any monetary gifts over the past 7 years, so I suspect they have asked for proof of gifts rather than receipts for every single item over that period. Especially as you said (bold bits are relevant)

She also does care for him and he in return pays her water bill as payment.

Cross-posted there. They do investigate claims randomly as well.

But the things you've mentioned paying for wouldn't be done by cash anyway, so there should be a paper trail even via the bank statement.

Is the £40k tax be an inheritance tax liability? If Bob's estate is over the inheritance tax threshold the estate would have tax to pay on the excess. You mention there are properties and cash in the estate so the beneficiary would have access to an asset of some sort to settle the tax I.e. one of the properties could be sold.

They may be looking through the bank statements of the deceased to ascertain any gifts made in the 7 years prior to passing. Any such gifts remain within the estate and may increase any inheritance tax liability arising .

If Bob was paying his daughter's water bill in lieu of her caring for him, this would essentially have to be treated as income for her, and declared and taxed if relevant, or be treated as a gift with possible inheritance tax implications. You mention your friend doesn't have any income so depending on how much she has received as "income" there may not be any income tax implications as the personal allowance may cover it. However, it may affect income assessed benefit entitlement over that time

I would imagine there's more to this than she's saying. She should have been given information in a letter and should have been asked if she has any questions with a direct contact to speak to.

Do they suspect undeclared property income? If tax has not been paid (or is suspected of not being paid) on rental income from properties then HMRC can investigate this and go back years, charging interest and penalties on any amounts due.

Also inheritance tax- this can be sizeable on properties and does have to be paid. The guidance on inheritance tax and property income on gov.uk could possibly help your friend understand more about this.

Ok that makes sense.

So they look at the account and look for money transferred to someone else or cash withdrawals and then need clarification on what that was for. So if Bob transferred money to his DD to pay for 3 months supply of incontinence pads then they could produce the receipt to say this is what the money was for? And therefore prove it's not a gift or a loan but a payment for things they need.

Honestly, I was so confused. Although £40k is a lot of money and I presume a lot of it went to the agency to pay for carers as although she did a lot of the care, she had other help come in to assist her.

Also she did all his washing at her house, there was a lot, bedding to be changed daily, sometimes twice a day if her dad had an accident. So she was using a lot of extra power. Would she be able to claim that was part of her caring for her dad?

They didn't get to do anything in the last four years. Even going on a day out was a nightmare, they had to pay for two lots of extra carers and a holiday was out of the question. Don't get me wrong, she loved her dad but it seems harsh that at this point she is now dealing with an absolute headache.

I think the only benefits they got were child tax credit and child benefit. I'm not sure how much she received from her dad or if the bills went directly from his account. Either way would that be deemed to be income?

catalane The third property has only been rented out for 2 and a half years. As far as I know that's all above board with the deposit being lodged with the deposit scheme and all declared with the tax man via Bob. The property was rented out to help Bob pay for his care.

The tenant paid his DD in April, six months rent as that's what they have always done. And paid it to his DD on the basis that if something goes wrong with the property then the money is there to fix it. The boiler recently had to be replaced which she got done straight away. Now the tenant needs a new gate as the old one has fallen apart but she now can't access the money and therefore the tenant has no gate leaving the property vulnerable.

There is inheritance tax to be paid but it seems this new bill is a shock and news to her. I will try and talk to her again and at least let her know what I've found out here.

Butterfly did your friend receive tax credits? Could it be anything to do with her account rather then bobs? If he's being paying certain bills for her it could be classed as him contributing to her household.

I care for my gran 50/50 with my mam, I don't deal with cash or banking my mam does all that but I know she keeps every single bank statement and receipt meticulously.

The best thing she can do is to make a list of all of the expenditure related to her dad hat she could possibly think of, even if it isn't receipted. If there is no physical receipt, could payments be evidenced using payments from her bank account? HMRC are not totally devoid of a level of sense and you should be able to argue that her dad required x number of incontinence pads a week on average and work out a cost over the whole period on that basis. Obviously the more receipt or proof of payment, then better. My best advice would be a clear and concise summary of expenses over the period, making reasonable estimates where there are not receipts and giving full detail as to how those estimates were calculated.

Although your friend wouldn't call payment of her water bill income, HMRC would certainly would call it income as it is compensation for her service, albeit paid to the water board but like I say, might those payments be covered by her personal allowance and therefore not taxable on her?

I think the first thing your friend needs to ascertain is what exactly HMRC are investigating.
Any advice we give on here could be a complete waste of her time if say, they're only looking at inheritance tax. That would be very different to looking at her income or Bob's income.
It could be any one of those or something else entirely!

I'd advise her to go to a reputable local accountant (like lawyers many will do a free half hour initial chat to see if they can help) and get them to deal with it.

It won't be free, but HMRC will take an accountant acting on her behalf more seriously and they might be able to reduce or cancel out the liability so that the cost is worth it.

Unfortunately if IHT turns out to be payable and she doesn't have the money to pay it she will have to sell one of the estate assets to raise the money.

Could it be the DWP as well, could he have been receiving means tested benefits without declaring the properties?

With HMRC it could be outstanding income tax, capital gains tax and inheritance tax.

I don't know how often HMRC would do an investigation, but with the DWP it's the norm. Also if they discover anomalies they can inform HMRC which would prompt an investigation.

Surely if she had Power of Attorney, she would have been keeping all the receipts anyway?
Or was she doing his finances unofficially, in which case she could get into trouble, because if someone doesn't have the capacity to deal with finances, and there's no PoW, it should go through the Court of Protection.

*PoA not PoW!

Agreed Motoko. Why was she dealing with his finances without POA? How did she have access to his bank account? I'm not surprised somebody reported it.

Having been the executor for a very complicated estate (where the iht was in excess of 700k), my only advice would be to get a good solicitor, who in turn usually have, either in house, or access to, experienced iht accountants. A good accountant can save you thousands.
If this person is the main beneficiary, it may be that assets have to be sold in order to pay the tax.

If Bob owned three properties and at least one of them was rented out, then Bob had an income. All income needs to be declared to HMRC and Bob should have made an annual tax return. If his daughter had POA, then she should have being doing this on his behalf.

Ignorance is no defence where tax is concerned.

I don’t have PoA for my father but am a 3rd party signatory on his bank account and his appointee for benefits- when I am with him we log into his online accounts and make Payments to his care home, that’s the only expenditure he has.

So you can manage someone else’s finances, as long as they consent.

Issues arise of course when mental capacity comes into it...

Bob's daughter needs an accountant asap. And I'm not sure about the water bills being 'payment' for assisting with finances.