In January 2022 new legislation came into effect which the government says will give most people reduced inheritance tax reporting requirements when someone dies. The hope is that 90% of non-taxpaying estates will no longer have to send Inheritance Tax (IHT) forms to HMRC.
When a death occurs, the executor named in a Will or administrator acting in an intestate estate (the personal representatives), must report whether there is any IHT to pay on the deceased’s estate (i.e. their assets, property etc). They do this using standard HMRC forms. The IHT205 is a short form used where the estate is left to a spouse/civil partner or a charity and the estate is valued under £1 million. This form is sent to the Probate Registry. Where the estate is more complex, larger and has IHT to pay, a full tax return must be prepared and a completed IHT400 form must be sent to HMRC. This is a much more detailed account of the deceased’s estate.
The changes introduced on New Years’ Day greatly widen the number of estates where only a short-form account is necessary and need only to be sent to the Probate Registry – not HMRC.
Now, for any person who died after 1 January 2022 leaving an ‘excepted estate’, with no IHT to pay, and where certain other conditions are met, a personal representative need only report estimates of the estate’s value as part of the probate application on the online Probate Registry Portal. No further reporting to HMRC is necessary and the IHT205 is now not in use. An estate is excepted if any of the following apply:
- Its value is below the current Inheritance Tax threshold;
- The estate is worth £650,000 or less and any unused threshold is being transferred from a spouse or civil partner who died first;
- The deceased left everything to a spouse or civil partner living in the UK or to a qualifying charity and the estate is worth less than £3 million;
- The deceased was living permanently outside the UK (a ‘foreign domiciliary’) when they died and the value of their UK assets is under £150,000.
If the deceased died before 1 January 2022, the previous rules apply.
What does this mean for personal representatives?
More and more married couples amass assets in their lifetimes totaling above £1 million so the raising of the excepted estate threshold to £3 million should give many bereaved spouses a simpler probate process when their loved-one dies. As long as the estate meets the requirements above, no extra reporting needs to be made to HMRC and everything can be done through the probate application process. This should save work and allow probate to be granted in much quicker time.
If you wish to have more detail on the tax rules that apply to estates, please get in touch with a member of our Private Client team.
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