Court upholds reprimand over delayed inheritance tax payment

Iceland’s Court of Appeal has upheld a reprimand against lawyer Höskuldur Þór Þórhallsson for delaying an inheritance tax payment and giving incorrect information to the lawyers’ disciplinary committee, mbl.is reports.

The court also ordered Höskuldur to pay Magnús H. Breiðfjörð Traustason, who had complained about his work, 1.2 million krónur in legal costs. It upheld a lower court order requiring Höskuldur to pay Magnús a further 1,456,070 krónur in costs.

The case arose from the administration of Magnús’s mother’s estate. Höskuldur was appointed estate administrator in July 2020, and the heirs approved the final distribution at a meeting on February 11, 2022.

Höskuldur had set aside funds for inheritance tax in a trust account. The tax was assessed on March 4, 2022, but was not paid until January 31, 2023. By then, the heirs had received a collection demand from the tax authority, and Magnús had complained to the disciplinary committee.

Höskuldur paid the late-payment interest himself. Attempts to have the interest cancelled and later reimbursed were unsuccessful. The committee reprimanded him on November 7, 2023. He later sued Magnús, seeking to have the committee’s decision overturned.

Höskuldur argued that the district commissioner had not notified him that the inheritance tax return had been approved, so the tax was not yet due and he was not entitled to pay it. The Court of Appeal rejected that argument, finding that the law placed an independent duty on an estate administrator to pay inheritance tax once a proposed distribution had been approved.

The court noted that the amount of tax was not disputed and that Höskuldur had received instructions from the district commissioner in February 2022 on how to pay it, but had not followed them. Payment was made only after the tax authority began collection proceedings against Magnús more than 10 months later. The relevant legal provision required notice to heirs, not to the estate administrator, the court said.

During the disciplinary proceedings, Höskuldur said the tax had been paid before Magnús’s complaint reached the committee. The case documents showed that payment was made several days later. The Court of Appeal found that the committee was entitled to take the inaccurate statement into account because it related directly to the complaint and could have affected the committee’s decision and Magnús’s interests.

The court also said it did not invalidate the decision that Höskuldur had not been specifically invited to comment on a proposed reprimand over the statement. The documents clearly showed that the information was wrong, making it foreseeable that any response would have little or no bearing on the outcome.

Höskuldur also argued that the committee should have dismissed the case and that criticism of his work as estate administrator belonged before a district court. The Court of Appeal rejected those arguments.