Simpler IHT reporting for some estates
From 1 January 2022, amended excepted estates regulations will apply.
This is expected to take over 90% of non-taxpaying estates outside the requirement to deliver an inheritance tax (IHT) return before obtaining a grant of probate (or equivalent).
Certain, ‘excepted’ estates currently only need to submit a short-form return rather than file a full IHT return. Some of the value limits for excepted estates are increasing so that more estates qualify from next year. In addition, there will be no form to file; it will only be necessary to report reduced information in the probate application.
The new regulations change some of the conditions for two categories of excepted estates, as follows:
Low value estates (where the gross value of the estate does not exceed the IHT threshold). Currently an estate below the threshold cannot be excepted if there are trust assets worth £150k or more, or lifetime gifts in the 7 years before death of £150k or more. The limits on the value of both trust property and chargeable lifetime transfers are increasing to £250,000.
Exempt excepted estates (where the gross value of the estate exceeds the IHT threshold but the net value after liabilities and the spouse or charity exemptions does not exceed the threshold). Under current rules the estate is not excepted if the gross value is over £1m even if exemptions bring the net value below the IHT threshold. The new regulations increase the uppler limit from £1m to £3m. Within this figure, the total amount of trust property is limited to £1m. Lifetime gifts in the seven years before death are also increased from £150,000 to £250,000.
In addition, the regulations amend the definition of “IHT threshold”. Generally this is the basic nil-rate band of £325,000; it does not include any additional ‘residence nil-rate amount’. However, it can include a full transferable nil rate band from a deceased spouse or civil partner, (subject to conditions), increasing the threshold to £650,000 currently. From 1 January 2022 the rules will be amended so that the threshold can include any part of a transferable nil rate band.
The regulations also increase the time period after which the person providing the excepted estate information will be discharged from any claim for tax to 60 days rather than the existing 35 (aligning with the existing 60-day period in Scotland). This is subject to any HMRC request for additional information within that period, and cases of fraud or failure to disclose material facts.
There will be no changes for the third category of excepted estates, where the deceased was never domiciled in the UK. However, the regulations clarify that a full IHT return is required where a non-domiciliary owned indirect interests in UK residential property and an estate cannot qualify as an excepted estate where a non-domiciled deceased made gifts of UK assets totalling more than £3,000 p.a. in the seven years before their death.
The regulations will have effect for deaths occurring on or after 1 January 2022.