Fewer non-taxable estates to require the delivery of full inheritance tax accounts
Last week it was announced that from 01 January 2022 amended regulations will take effect which should help to reduce the administrative burden on personal representatives dealing with non-taxable estates by excusing them from having to deliver a full inheritance tax account as a pre-requisite for obtaining probate.
Duty to deliver an inheritance tax account
Where a grant of representation is being applied for by one or more personal representatives of a deceased person to administer the estate, there is a requirement that an inheritance tax account is delivered to HMRC and any inheritance tax due on the estate paid or an instalment payment option agreed with the tax authority.
Without this, subject to very limited exceptions, the Probate Registry will not issue the grant of representation and matters cannot be progressed in administering the estate.
Excepted estates – the current position
At present, in cases where no inheritance tax is due and the estate qualifies as an ‘excepted estate’, regulations provide that the need to deliver a full inheritance tax account to HMRC can be dispensed with and simplified information can instead be submitted directly to the Probate Registry.
Generally speaking, an estate can be treated as being ‘excepted’ for inheritance tax purposes if it satisfies one of the following three broad categories:
- If the gross value of the estate (i.e. before the deductions of liabilities) does not exceed the inheritance tax threshold (this being the nil rate band allowance of £325,000 or £650,000 if a claim for the transferable nil rate band allowance in full is being made from a deceased spouse or civil partner’s estate); or
- If the gross value of the estate exceeds the inheritance tax threshold but does not exceed £1,000,000 and the net value after liabilities and exemptions (i.e. spouse or civil partner and/or charity), does not exceed the inheritance tax threshold; or
- If the deceased was never domiciled in the United Kingdom and the gross value of the estate does not exceed £150,000.
It should be stressed that other eligibility criteria need to be satisfied. This includes any trust property not exceeding the value of £150,000 and any specified transfers (such as outright gifts) within 7 years of death also not exceeding this figure.
In such cases, a shorter inheritance tax form can be submitted directly to the Probate Registry along with the remaining grant of representation application papers, thereby avoiding the need to first deal with, and seek authority to proceed from, HMRC.
Usually, if an estate has no inheritance tax to pay, it will be an excepted estate. However, this is not always the case and there can be instances in which personal representatives still find themselves still under an obligation to deliver a full inheritance tax account to HMRC despite there ultimately being no inheritance tax to pay. Such instances currently include where a deceased person leaves everything to their surviving spouse or civil partner but the gross value of the estate is in excess of £1,000,000.
Excepted estates – the changes on the horizon
For deaths occurring in England, Wales and Northern Ireland on or after 01 January 2022, the above criteria will be widened further. Although there will be numerous changes, the headline points are the following:
- The increase of the threshold for the gross value of an excepted estate from £1,000,000 up to £3,000,000.
- The amending of the definition of inheritance tax threshold to include cases where some of the available threshold was used when the first spouse or civil partner died and a claim is then made for the unused percentage to be made available against the surviving spouse or civil partner’s estate in respect of which a grant of representation is being applied for. It is currently the case that the transferable nil rate band allowance for an excepted estate is only available if it can be used in full.
- The increase of the value threshold of chargeable trust property from £150,000 up to £250,000. The same will also apply to specified lifetime transfers.
It is anticipated that the new regulations will mean that for over 90% of non-taxpaying estates each year, delivery of an inheritance tax account to HMRC as a condition for obtaining a grant of representation will not be required, thereby helping to reduce the administrative burden on personal representatives at a difficult time.
If you would like assistance with obtaining a grant of representation or in administering an estate then please do not hesitate to get in touch with our Tax and Estate Planning team today. We are happy to offer a free initial consultation of up to 30 minutes with no obligation to instruct us further.