omitted PET

[steven13]

The executors to a will were a firm of solicitors who specialise in Probate and IHT. They complete the Estate, pay the IHT and distribute the balance to the beneficiary. Sometime later a failed PET comes to light which was omitted from their IHT calculations. The solicitors/executors held details of the PET on their files at the time they completed the estate. They have agreed to pay any interest or penalty imposed by HMRC. Having paid out everything to the beneficiary they hold no assets with which to pay the omitted IHT. Presumably however the IHT is a personal liability of the executors but would they have a case against the beneficiary to claim on him under the common law of restitution?

[maths]

A failed PET may not give rise to any actual IHT charge if it falls within the donor's NRB at that time (i.e. charge at 0%). However, although no actual IHT charge arises on the PET it does reduce the amount of NRB available for offset against the donor's estate on death thus potentially increasing the IHT charge on death. Such a liability is that of the executors alone.

If however the PET did not fall within the NRB of the donor it will be subject to an IHT charge with the donee (i.e. recipient of the gift) being primarily liable. The PRs would only be liable for the IHT if it remained unsettled 12 months after the donor's death (but even then HMRC maybe not pursue the PRs although in this case such pursuit would seem likely). Should the PRs discharge this liability there is no recourse against the donee of the gift under IHTA 1984 s.211(3), a statutory indemnity.

Not sure about the restitution point.

[steven13]

Thank you for your reply. the failed PET fell within the donors NRB, meaning that there is an underpayment of IHT on the donors free estate on death. The amount underpaid has been agreed with HMRC and is the liability of the executors/solicitors. However as they paid out the estate assets some fours years ago they have no funds to pay it with. They have accepted that it is their error.
They have intimated that they will pay the IHT themselves but then seek to recover the payment from the original beneficiary under the common law of restitution. Can they do that as it seems to me that if they can it dissolves them of any responsibility for their negligence.

[Lee Young]

The liability for negligence is covered by their paying any penalty and interest. The IHT is payable whether or not they declare it - their not declaring it on time does not change the fact that it is still payable, and had it been paid on time the beneficiary would have received less. They can claim it back from the beneficiary, who has been "unjustly enriched" - whether they want to go to the time, expense, and potential professional embarrassment of doing that is of course another issue.