Inheritance Tax – A Change To The ‘Excepted Estate’ Rules

Wills Probate Holding Hands for disability post

In her latest Timms Blog, Head of Wills and Probate, Jo Robinson, discusses Inheritance Tax and the change to the ‘Excepted Estate’ rules”

First Of All, What Is Inheritance Tax?

Inheritance tax is a tax that is charged on the value of a deceased persons estate.

An estate includes assets owned either in the deceased’s sole name or their share of any joint assets. This includes property, savings, investments, and personal effects.

The value of gifts made by the deceased in the seven years before their death (subject to several exemptions including the annual exemption of £3,000) is also considered when assessing the inheritance tax calculation.

What Is An Excepted Estate?

An excepted estate is an estate where a full inheritance tax account (IHT400) is not required when applying for a grant of representation. There are currently three types of excepted estate:

1. Low value estates. These are estates where the deceased died on or after 6 April 2004, where the deceased was domiciled in the UK, and where the gross value of the estate (including the deceased’s share of jointly owned assets and any gifts made during the past 7 years) does not exceed the inheritance tax nil rate band. The nil rate band is currently £325,000.

This threshold may be higher if the deceased was married and their spouse died before them. This is because married couples can combine their nil rate band allowances.

2. Exempt estates. These are estates where the gross value of the estate does not exceed £1,000,000 and there can be no liability to inheritance tax, because of a spouse or civil partner exemption, or charity exemption, which brings the estate below the inheritance tax nil rate band.

3. The estate of a deceased who died on or after 6 April 2002 and who:

    • Was domiciled outside the UK at the date of their death;
    • Had never been domiciled in the UK during their lifetime; and
    • Where the gross value of their estate in the UK consists only of cash or quoted shares or securities passing under their will (or intestacy or survivorship) does not exceed the limits set out by HMRC.

What Are The Changes?

The Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) Regulations 2021 comes into force on 1 January 2022 and make the following changes:

  1. They raise the gross threshold value of an excepted estate from £1,000,000 to £3,000,000.
  2. A rise in the value threshold of the estate’s chargeable trust property from £150,000 to £250,000. (Although the total amount of trust property including exempt amounts is limited to £1,000,000.
  3. They increase the threshold in respect of lifetime gifts from £150,000 to £250,000.
  4. They now allow the inclusion of estates where the unused percentage of a deceased spouse’s nil rate band is being claimed.
  5. Or they simplify the alternative information that is to be produced for both small estates and exempt estates.
  6. The removal of excepted status from estates of foreign persons where the deceased owned indirect interests in UK residential property. Or they made lifetime gifts of UK assets above £3,000 in the 7 years before death unless the estate is not liable for IHT.

So, What Does This Mean?

It means that in many more cases there will be no need to file an inheritance tax form and the current form for excepted estates (IHT205) will be effectively abolished.

However, seeking legal advice following a death is still essential to ensure that the terms of the Will are properly understood, and it will still often be necessary to obtain a grant of representation (commonly known as probate). This is to enable the personal representatives to deal with the deceased person’s estate.

It is also essential that the personal representatives fully understand their duties and the risks involved when administering an estate. Such as claims by third parties, unknown creditors, or missing assets.

For further information, please contact me at j.robinson@timms-law.com or on 01332 364436. Alternatively, visit our website here.

 

Jo Robinson

November 2021

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