Can Executors of an Estate Make a Claim for Losses on Behalf of the Deceased?
The recent case of Executors of Leadley Dec’d v HMRC examined the ability of Executors of an estate to make claims in relation to the deceased’s tax affairs prior to death.
Mr Leadley invested £50,000 into shares in two companies. He also lent circa £330,000 to a third trading company. Mr Leadley died in a car accident on 11 May 2010. The parties to the case agreed that by 5 April 2010 the shares were worthless, as was the debt.
The Executors of Mr Leadley’s estate made a claim for negligible value in the 2009/10 tax return on Mr Leadley’s behalf in relation to his share investment. The claim creating an income loss for that year under ITA 2007 S131.
Also the Executors made a claim for the creation of a capital loss under TCGA 1992 S253 on behalf of Mr Leadley, in relation to the loan.
After a review was carried out by a fellow Inspector, HMRC confirmed that they had determined that the loss claims couldn’t be made, because the Executors weren’t competent to make them. The Executors appealed.
HMRC insisted that the Executors could not make the claim for negligible value because of the wording of the legislation which says “A negligible value claim may be made by the owner of an asset “P””. The Executors were not the owners of the assets in 2009/10 and therefore HMRC argued that they could not make the claim.
Interestingly, during her findings, Judge Mosedale said that “as a matter of common law the personal representatives do represent the deceased in respect of all assets. They are his heirs and assigns.” She went on to say therefore that “under common law the executors would be able to make on behalf of Mr Leadley any claim which he could have made, unless the taxing statute expressly provided that the claim died with Mr Leadley.”
However the Judge did not mention this point in her findings and it was not brought by the Appellants.
In general the Judge found that HMRC had taken a too literal approach to the interpretation of the legislation. By reviewing other legislation she concluded that Parliament’s intention is to allow Executors to make the same claims that the deceased could make.
The Appellants claims for losses were both allowed. However, it was held that the capital losses could not be carried forward beyond Mr Leadley’s death.
See our December 2014 Tax Update for more recent cases.