Probate refers to the process of applying for a Grant of Probate (when there is a Will) or Letters of Administration (when there is no Will), which are legal documents that the person dealing with the estate may be required to obtain. If required, the Grant of Representation (the umbrella term for both documents) gives this individual the legal right to proceed with estate administration, which is the entire process of dealing with the assets and liabilities of someone who has died and then distributing their estate to the beneficiaries.
When dealing with probate and estate administration, you may come across the term excepted estate. It’s important to understand whether the estate you are dealing with falls under this term, as it can affect how you report the estate to HM Revenue & Customs (HMRC) for Inheritance Tax (IHT) purposes.
What is an excepted estate?
Generally, an excepted estate refers to one where the Personal Representative (Executor or Administrator) dealing with the estate administration process does not need to submit a full IHT account to HMRC. There are several kinds of excepted estates, but it’s also important to understand what IHT is in order to understand the different types.
What is Inheritance Tax?
IHT is a tax payable to HMRC upon a person’s death; it is paid from the estate, but the tax is levied on assets (property, money, possessions, etc.) that the deceased owned. This means that the overall inheritance may be reduced for the estate’s beneficiaries, but they should not have to pay this tax out of pocket.
There is no IHT to pay if the person’s estate is below the value of £325,000. This threshold is known as the Nil Rate Band (NRB). It is also not payable if everything is being left to the deceased’s spouse, civil partner, a charity, or a community amateur sports club.
If the individual who dies is married or in a civil partnership and their full NRB is not used on their death, any unused amount can be added to their partner’s threshold upon their death. This is known as the Transferable Nil Rate Band. Learn more about the Nil Rate Band and Discretionary Trusts.
What are the excepted estate requirements for Inheritance Tax purposes?
GOV.UK sets out the conditions that will likely make an estate an excepted estate. These requirements also define the type of excepted estate it is:
Low value excepted estates
- The value is below the current IHT threshold (NRB)
- The estate is worth £650,000 or less and any unused NRB is being transferred from a spouse or civil partner
- The assets in a single Trust are valued below £250,000
Exempt excepted estates
- The deceased left everything to a spouse, civil partner, a charity, or community amateur sports club and the estate is worth less than £3 million
Foreign domiciled excepted estates
- The deceased was a foreign domiciliary (living permanently outside of the UK) when they died and the value of their UK assets is below £150,000
The above requirements apply to all deaths on or after 1st January 2022. For deaths between 2nd September 2006 and 31st December 2021, the conditions are slightly different for exempt estates: the maximum value for the estate is £1 million, rather than £3 million, when everything is left to a spouse, civil partner, a charity, or community amateur sports club. Additionally, for deaths before January 2022, the limit for assets in a single Trust is £150,000, rather than £250,000.
Even if an estate is excepted and an IHT form is not required, a detailed schedule of all the deceased’s assets and liabilities will still be required if probate is needed. This includes the gross and net values of the estate, both for IHT and probate purposes. You do not need to report the value of an excepted estate if probate is not required.
Does an excepted estate affect probate?
The probate and estate administration processes can be affected by whether or not IHT is payable; if IHT is required and a Grant of Probate needs obtaining, the court will not issue a Grant until HMCTS confirms that some of the IHT has been paid up front. Additionally, after the sixth month following the date of death, interest will be added to the IHT bill. Therefore, it’s important to identify whether an estate is excepted as early in the process as possible.
However, if IHT is not required, this doesn’t necessarily mean that probate is not needed (and vice versa). As financial institutions choose their own probate thresholds (when they need to see a Grant to release funds), it could still be required.
When is probate required?
Usually, probate is not required if the estate is valued at less than £5,000 or all assets are held jointly and are passing to the surviving joint owner. When assets are held solely and the balance exceeds the probate threshold at the institution where they’re held, probate is probably needed. As banks and building societies set their own thresholds, these are subject to change, and it can be confusing to work out whether the estate exceeds it. Our blog provides an overview of probate thresholds in UK financial institutions and when it is necessary to apply for probate.
The Personal Representative can instruct a professional to carry out the probate and estate administration processes on their behalf if they want to. Here at Kings Court Trust, we offer four specialist estate solutions, from obtaining the Grant of Probate only to full estate administration. We can take care of the Inheritance Tax reporting, probate application, and everything else involved to alleviate the stress and burden from you.
If you have any questions about excepted estate, probate, or the estate administration process, get in touch with our Client Services Team by calling 0300 303 9000 or filling in the form below.