Navigating Change: Understanding the new excepted estate rules

Some estates are excepted from the need to pay Inheritance Tax. In January 2022, the rules surrounding this changed, with the aim of simplifying the Inheritance Tax process. We take a look at the new excepted estate rules.

From January 2022, it is no longer necessary to complete Inheritance Tax form 205 if an estate is exempt from Inheritance Tax.

Previous regulations

Previous requirements stated that even if an estate was not liable to pay any Inheritance Tax, the account form IHT205 had to be completed and filed with HM Revenue & Customs. This was before the estate’s administrators or executors could apply for to the Probate Registry for a Grant of Letters of Administration or a Grant of Probate.

Everyone has an Inheritance Tax allowance. If this is not used when they die, it can be passed on to a spouse. Previous rules stated that where an unused allowance was transferred, form IHT400 needed to be completed and filed. An application to the Probate Registry could be made after this was completed. This is a longer and more in-depth form than IHT205.

Where the deceased had made chargeable lifetime transfers, ie. the transfer of money into a trust. There was a requirement to report these when the value exceeded £150,000.

Where an estate included foreign property valued at over £100,000, then form IHT400 was again required.

What is an excepted estate for IHT?

An excepted estate arises in the following cases:

  • Where the value of an estate falls below the Inheritance Tax threshold
  • Where an estate is valued at less than £1 million. This includes chargeable and exempt lifetime transfers, and the value of property passing to beneficiaries falls below the Inheritance Tax threshold
  • Where the estate is that of an individual not domiciled in the UK and who held only limited UK assets
The new excepted estate regulations

HM Revenue & Customs received criticism in the past. This was due to requiring extensive information when no Inheritance Tax was payable. The new rules aim to make it easier for those carrying out estate administration. Thus making the initial phase of applying to the Probate Registry for a grant much easier.

The Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) Regulations 2021 will apply to all estates where the deceased died on or after 1 January 2022.

If an estate is excepted from paying Inheritance Tax, the value of the estate does not require reporting to HM Customs & Excise. When calculating the value of an estate, you need to value all of the assets. Include gifts made in the seven years before death, and subtract debts and other liabilities. You can also discount assets left to a spouse or civil partner. Where the net value falls below the Inheritance Tax threshold, you do not need to submit an account to HM Customs & Excise.

The value of the estate must be calculated accurately. The Probate Registry must be notified at the time of application for a grant.

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