Can anyone advise re will/estate/inheritance tax type situation?

[Santolina]

I am a regular who has name changed for this.

Several months ago I inherited a sum of money from a relative. After a couple of months I opened a 5 year investment plan and transferred a good portion of the money into it. The fund has fairly hefty financial penalties for withdrawing funds before the 5 years is up.

I have also spent a proportion of the money on improvements to our home, and I still have some funds left which are accessible immediately.

Several weeks after I transferred the money, I was advised unexpectedly by one of the exuctors that there had been an error in calculating the tax on the estate and that in due course I and the other beneficiaries would have to pay some of the money back to settle the increased tax bill.

I am furious because the figure I have been advised I may have to pay back would mean I have to withdraw the funds in the 5 Year Plan and face paying a penalty.

I just want to know, if anyone can help, am I legally obliged to pay money back once it has been paid to me, to settle these further taxes?

Are the executors solicitors or were they being advised by solicitors ?

The executors are a family member and another person not related. They had been advised by the solicitors to pay out the funds. There had been an interim payment before the "final" amount was paid.

The solicitor filed the tax return afaik, and I have been told the "mistake" was with the IR. It was a large and somewhat complex estate.

I would have thought that the executors are liable for the tax burden - which they would usually pay out of the estate. If the executors were mis-advised, then they may have a claim against the solicitors.

The part of the narrative I am having trouble with is "The solicitor filed the tax return afaik, and I have been told the "mistake" was with the IR". Usually it is the solicitors who calculate the tax before submitting the form (provided we are talking about a relatively recent death - rather than an estate which has continued for several years).

Sorry, what I meant was, from what I understand, the solicitors would have calculated the tax, filled in the form and submitted it to the IR. Once this was done, the tax would have been paid and probate granted. Is that right?

At some point after probate was granted, the IR seem to have come back and said that more tax is owed.

I don;t really understand how this could have come about.

Could happen in many many ways eg IR not accepting valuations of say real property, art, furtniture. Or say gifts made before the deceased's death which came to light after the form was completed. Another example would be sale of an item which lead to a large CGT bill. There are many ways this could occur.

OK, thanks. So lets assume there was something that had not been accounted for that gave rise to more tax being due.

How does the tax get paid if all the funds have been paid out, or at any rate not enough has been retained to pay the additional tax?

I've been thinking about this - Firstly would the penalty eat into the lump sum invested ? Meaning, would you actually have lost anything

Secondly, did the solicitors obtain a certificate from the IR stating that the estate was closed from their POV before making a final distribution.

I am making a lot of assumptions re the matter eg, you were entitled to all/a share of the residue, rather than being a beneficiary of a fixed amount/

Who didn't account for it and why ?

I need to go for supper now - will be back on in the morning

Thank you for your help so far, indignatio - enjoy your supper!

In answer to your questions

Yes it would eat into the lump sum. E.g. if I had to cash the policy in within the first year, I will get the sum back less 7%. That's why I'm so annoyed.

I don;t know about the certificate - am I entitled to find this out? I suspect it had not been issued, because at one time I was told that there might actually be a further payment - thus indicating that an amount was being retained for payment of additional tax, and that in fact this wasn;t enough.

I assume it was the solicitor who didn;t account for it / advised the executors to pay out too much (?). One of the executors is a close family member and he hasn;t been directly involved in any of the tax stuff. Only acting on the solicitors advice, as far as I know.

Yes I was entitled to a share of the residual estate.

Morning - I have been thinking about this. Is it possible to tell me more about the "something which had not been accounted for" ?

Erm, not really! I don;t know enough details about the estate to know what it might have been. In the will it mentions a trust with specific beneficiaries, the proceeds of a house sale which is also bequeathed to an individual, some gifts to charities etc and then the residual estate, which would have been made up mainly from a number of different investments.

I have just checked the paperwork that I have. The initial payment I received was not paid out from the will, it was a separate trust fund.

In the letter I received with the second payment, and it states that it was an interim payment, not final.

I'm sorry this seems really complicated although you seem to know the right questions to ask.

Do you think I ought to write to the solicitor dealing with the will and ask for written confirmation of the situation? Or seek some legal advice?

I would say the first thing you need to do is ask the Executors or their solicitors to provide you with a full explanation of what has happened, including what the 'thing that was not accounted for' is. You could also ask to see a set of interim estate accounts which should set out everything that has been collected, paid, etc to date.

You may have to pay the money back but you need to know the exact position first.

Assuming you do have to pay this amount that you've been asked for would it be possible to borrow the money from someone, remortgage etc rather than break into the special account and lose your 7%? Interest free credit card and move it around for a few years?

I am assuming that you have a copy of the will. WRT the proceeds of sale of the house, is this said to be tax free or not ?
Are any of the residual beneficiaries charities ? I am just trying to work out how this could have occured.

My gut feeling is that you shouldn't lose money as a result of an excessive interim payment, especially one which didn't state that it may be an overpayment and you may be required to repay part of the monies.

I still think that it is the executors who are liable for the tax and it is possible that they have been misadvised or "took matters into their own hands" or took no notice of the advice of the solicitors.

I am not sure whether you are entitled to a copy of the estate accounts, but there is no harm in asking for them. I would also ask the executors for a copy of the submitted tax returns and a full explanation of why further tax is due. Once you have this, you may be in a better position to decide what to do next.

Thanks for your comments everyone.

I think I will write to the solicitors, asking them to confirm what I have been verbally advised by the executors, and for an explanation of why they think we may have been overpaid. I will also request a copy of the accounts, and see where I get.

Good idea..............I am a probate solicitor if you want me to have a look at the repluy when it comes through.

MP

IHT is payable over 10 years - don't know whether this helps at all.

To clarify - it is only the IHT on an unsold property that can be paid over 10 years - and all the IHT due on that property becomes payable immediately if the property is sold

Ah, ok, thanks for that