HM Courts & Tribunals Service (HMCTS) has recently changed the Inheritance Tax (IHT) reporting requirements for excepted estates. The amendment made under The Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) Regulations 2021 applies to all deaths on or after 1 January 2022.
An estate is referred to as an ‘excepted estate’ when no Inheritance Tax is payable. To find out more about the criteria to qualify as a non-taxable and ‘excepted’ estate, visit the gov.uk website.
The changes are expected to reduce the number of submissions that require a completed IHT form to obtain a Grant of Probate in England and Wales or Confirmation in Scotland. However, as the reporting requirement for gross and net estate values has not changed, date of death values for assets and liabilities still need to be established as part of the probate application process.
What are the changes?
If the date of death is before 1 January 2022, then the old rules still apply and an IHT form may be required. However, if the date of death is on or after 1 January 2022, then the following changes need to be considered if a Grant of Probate or Confirmation is required:
Low value excepted estates
- Increased limit on assets in a single Trust from £150,000 to £250,000. Prior to 2022, an IHT205 was required if the value in a Trust was below £150,000. However, as part of the new changes, an estate could be classified as an excepted estate at the increased threshold of £250,000.
- Increased chargeable transfers made prior to death from £150,000 to £250,000. Before 1 January 2022, gifts made up to the value of £150,000 were to be reported on an IHT205. As a result of the amendment, this has now increased to £250,000. For example, if presented with an estate where the deceased passed away on 10 January 2022 with gifts of £230,000, this would now be considered an excepted estate and therefore requirements for reporting are reduced in line with the changes.
Exempt excepted estates
- Increased gross value of the estate from £1million to £3million. For example, if the date of death was 10 October 2021 and the estate going to the spouse is worth £2million, the more complicated IHT400 form will be required. However, if the date of death is post 1 January 2022, the new changes apply within the new excepted estate allowance and an IHT400 will not be required.
- There are no changes for an excepted estate where the deceased was not domiciled in the UK. In this case, an IHT207 may need to be completed. However, if there are gifts of more than £3k per year, an IHT400 will automatically be required as HMRC will likely want to investigate the estate background.
Transferable Nil Rate Band (TNRB)
Previously, if any of the Nil Rate Band (NRB) was used from the first death, it automatically triggered an IHT400. However, because of the new changes, estates where some of the NRB was used by an earlier death can now qualify as an excepted estate if:
- The estate is a ‘low value excepted estate’ and the gross value of the estate is at or below the NRB/TNRB available
- The estate is an ‘exempt excepted estate’, the gross value of the estate is no more than £3million, and the net qualifying value of the estate is at or below the NRB/TNRB
There are no changes to Residence Nil Rate Band (RNRB), therefore, this will need to be completed using the old reporting system and submitted on an IHT400.
Probate Registry information
Even if an IHT form does not need to be completed, a schedule of assets and liabilities will still need to be produced to provide the Probate Registry with:
- The net value of the estate for IHT purposes. The net value is all assets, including sole or joint assets, gifts, or an interest in a Trust, added together with liabilities taken away. Joint assets need to be reported for IHT purposes, but probate is not required as they pass by survivorship. A common misconception is that joint assets do not need to be reported as a Grant is not required. However, this is incorrect as the details are needed to establish the IHT position.
- The gross value of the estate for IHT purposes. All sole or joint assets, including the value of any gifts or interest in a Trust, without any liabilities taken away.
- The net qualifying value of the estate. The net qualifying value is what you have based on all your assets and liabilities. This is essentially a full review of gifts, Trusts, etc. minus any assets left to a spouse, civil partner, or charity that are classed as exempted.
- The net value of the estate for probate purposes. All assets that are in the deceased’s name, plus their share of any joint assets that do not pass by survivorship, minus any liabilities in the deceased’s name.
- The gross value of the estate for probate purposes. All assets that are in the deceased’s name, plus their share of any joint assets that do not pass by survivorship. For example, tenants in common property.
Within the prescribed period, HMRC can request additional information regarding the estate from Executors or Administrators. Prior to 1 January 2022, the revenue had 30 days to contact Personal Representatives to query any of the information provided. The period in which a qualifying excepted estate is discharged from an IHT liability has been increased to 60 days.
Kings Court Trust’s Legal Services Director, Charlotte Toogood, comments:
From simplifying the reporting in terms of one less form for HMRC, time will tell if more sample checking will take place. As the probate application form has been updated for submissions, the declaration page now goes into more detail regarding the NRB and confirming values about the estate. This may lead to HMRC asking more probing questions about the information provided.
To summarise the changes, although the increased thresholds to avoid the complex reporting of the value passing to a spouse, chargeable transfers, and Trust limits are welcome adjustments, this should not be considered a major simplification of the process. As HMRC still require the gross and net values from the estate, the work to obtain these figures is still mostly required; it just does not need to be submitted on an IHT form.
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