UK Inheritance Tax regulations amended to “exempt” many more estates.

Significant amendments to the Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) Regulations 2021 came into force this month. Aimed at removing the administrative burden by “exempting” more estates from the need to submit detailed estate returns as a condition of obtaining probate.

These amendments apply to deaths occurring in the United Kingdom from 1st January 2022. This means that clients will no longer be required to report the value of an excepted estate if they’re not applying for probate. However, for an estate to be excepted they must meet certain criteria.

The 2004 regulations provide for three broad categories of excepted estate.

1) Small estates – where the estate’s gross value for IHT purposes does NOT exceed the threshold. Eligibility is conditional on, amongst other things:

(i) That the estate for IHT purposes included no more than £150,000 of trust property;

(ii) In the seven years before death. The deceased did NOT make chargeable transfers other than certain specified transfers not exceeding £150,000 before deduction of agricultural or business property relief.

2) Exempt estates – Where the gross value EXCEEDS the IHT threshold. The net value after liabilities and spouse or charity exemptions DOES NOT exceed the IHT threshold:

(i) Eligibility is conditional on, but not limited to, the estate’s gross value NOT exceeding £1 million. The estate for IHT purposes included no more than £150,000 of trust property but ignored property that passes on death to a spouse or charity.

(ii) In the seven years before death, the deceased did not make chargeable transfers other than certain specified transfers not exceeding £150,000 before deduction of agricultural or business property relief.

3) Foreign person estates – those where the deceased was never domiciled in the United Kingdom and the UK estate comprises only cash or quoted shares or other securities. Eligibility is conditional on certain supplementary conditions being met.

Changes to the rules involve:

• Raising the threshold gross value of an excepted estate from £1 million to GBP 3 million.
• Raising the value threshold of an excepted estate’s chargeable trust property from £150,000 to £250,000. Although the total amount of trust property including exempt amounts is limited to £1 million.
• Increasing the value limit in relation to specified lifetime transfers from GBP 150,000 to £250,000.
• Amending the definition of ‘IHT threshold’ to include cases where some of the available threshold was used when the first of a married couple or civil partnership died and a claim is made for the unused percentage to be made available against the current estate (the transferable nil-rate band).
• Simplifying the ‘alternative information’ that is to be produced for both small estates and exempt estates.
• Removing excepted status from estates of foreign persons where the deceased either.

(i) Owned indirect interests in UK residential property

or

(ii) made lifetime gifts of UK assets above £3,000 in the seven years before death, unless the estate is not liable for IHT.

The amended regulations also extend the period where HMRC can ask the personal representatives for additional information. This is to demonstrate the estate qualifies as excepted to 60 days. This brings the rules in England, Wales and Northern Ireland into line with Scotland’s regulations.

At the same time, HMRC is extending the time requirements for HM Courts and Tribunal Service to transmit probate application information to one month.

Such amendments will ‘significantly reduce’ the costs for businesses, charities and voluntary bodies that administer estates. HMRC states, ‘Around 60% of the 240,000 estates a year affected by this measure (approximately 145,000 a year) are administered by probate practitioners and solicitors with ongoing savings’.

Although these changes are a positive move for both practitioners and their clients. As over 90% of non-taxpaying estates will no longer be required to send IHT forms to HMRC. A lack of understanding has led to many advisers completing the incorrect IHT forms.

At CTT we’re committed to helping you understand these changes and how they will impact your clients. Join our informative online course here.