When a person dies, their relatives have to deal with the process of obtaining probate, filing tax returns and distributing any assets in accordance with either intestacy rules, the deceased’s wishes or any subsequent deeds of variation. At what can be a difficult time, it can sometimes come as a shock if HMRC then opens an enquiry or investigation into your deceased relative’s UK tax affairs.

Why are HMRC investigating?

Such enquiries or investigations may arise if the deceased’s assets, as disclosed on the inheritance tax form, exceed those which HMRC expected, based on its knowledge of the deceased’s income and gains. In these circumstances, HMRC is likely to check to ensure the deceased properly declared all their income and gains in their lifetime.

In addition, HMRC may already be conducting enquiries into the deceased’s personal tax position, for example if they used a tax avoidance arrangement during their lifetime.

HMRC holds lots of data on people’s income and assets in its computer system, CONNECT. If the deceased’s inheritance tax return looks incomplete then CONNECT may identify this and trigger an investigation.

What are the timescales?

Where no self-assessment enquiries are open, HMRC has four years after the end of the tax year in which the deceased passed away to assess any income tax or capital gains tax liabilities. However HMRC may assess six years’ tax if the deceased or anyone acting for them before their death made careless or deliberate errors or omissions.

HMRC may use its information powers to obtain the data necessary to quantify and assess this tax and, if necessary, any additional inheritance tax liabilities plus late payment interest.

Will there be penalties?

HMRC is unable to issue penalties for errors made by the deceased during their lifetime. However if the returns it is investigating were submitted after the deceased’s death then penalties may be due.

What to do if you notice any errors

If an executor realises that the deceased’s tax returns and/or an inheritance tax return is incorrect then it is advisable to obtain advice from a specialist so that an appropriate disclosure is made to HMRC quickly.

A disclosure will inform HMRC of the error or omission in the return(s) and quantify the tax due. Correcting issues swiftly should minimise any penalties and bring peace of mind to those due to inherit assets.

Advice should be sought on the best method to make a disclosure, particularly where it may affect the UK tax affairs of a trust or person who is still alive, as well as the deceased.

Helen Adams TEP is Tax Principal at BDO LLP in London, UK