Roger Harding Tax Director
Changes to probate application process and submission of inheritance tax accounts for deaths on or after 1 January 2022
On 1 January 2022, The Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) Regulations 2021 came into effect. The 2004 regulations were extended, so that the majority of non-taxpaying estates are no longer required to complete IHT forms in cases where a grant is required.
The new regulations serve to minimise the administrative burdens imposed on those dealing with IHT, by reducing the reporting requirements for excepted estates and limiting the circumstances in which full inheritance tax accounts must be delivered to HMRC. The new regulations, however, will only apply to estates or deaths that occur on or after 1 January 2022.
What are the main changes to the regulations?
1. Requirement to file IHT accounts
If you act for a person domiciled in the UK who dies on or after 1 January 2022 with an excepted estate (one in which no IHT is due), you are no longer required to submit an IHT205 form (and, if applicable, an IHT217 form) to HM Courts and Tribunals Service (HMCTS) as part of your probate application.
2. Monetary limits have been increased
A small estate is one where the gross value is less than the IHT threshold. The value limits in relation to trust property (e.g. where the deceased was a beneficiary of a trust) and specified transfers (e.g. where the deceased made a gift in the seven years preceding their death that failed and became chargeable to IHT) has been increased from £150,000 to £250,000.
Exempt estates have a gross value that exceeds the IHT threshold, but a net value that does not exceed after accounting for liabilities, exemptions and/or reliefs. As above, the value limits for both trust property and specified transfers have been raised to £250,000. However, the total value of trust property, including exempt amounts, is capped at £1 million. Furthermore, the gross estate limit for an exempt estate has been increased from £1 million to £3 million. This means that if the estate is less than £3 million in value and all assets above the IHT threshold pass to a spouse/civil partner/charity, the personal representatives (PRs) can apply to the probate registry for the grant without first submitting a form IHT400 to HMRC.
3. The reporting requirements have been reduced
Since the information required by HMRC for those who are UK domiciled has been significantly reduced, PRs are now only required to provide the following as part of the probate process: the deceased’s full name and date of death, whether they are claiming a transfer of the unused nil rate band of a pre-deceased spouse/civil partner; and the estate’s gross value, net value and net qualifying value.
What are some of the other changes brought about by the new regulations?
Qualifying non-domiciled estates:
A non-domiciled estate is an estate where the deceased was never domiciled in the UK. The regulations make it clear that an estate does not qualify as an excepted estate, and so there is a requirement to submit the full IHT400 report to HMRC, where the deceased owned indirect interests in UK residential property through a close company or partnership, or if the deceased made any chargeable gifts of UK assets totalling more than £3,000 in the seven years preceding their death.
The IHT threshold definition:
The definition has been extended to include cases where only a portion of the available nil rate band was used when the first spouse/civil partner died, and a claim is made to transfer the unused portion to the estate of the surviving spouse/civil partner. This means that PRs will no longer be required to use the IHT400 route if the entire nil rate band is not available for transfer.
The deadline for HMCTS to provide the necessary information to HMRC has been extended to one month. The time limit for HMRC to request additional information from the PRs has also been increased, from 35 days to 60 days.
What does this mean for you?
If there is no inheritance tax to pay (i.e. the estate is small or exempt), and the person dies on or after 1 January 2022, you do not need to report the value of the estate to HMRC as part of your probate application.
If there is inheritance tax to pay (i.e. the estate is not excepted), and the person dies on or after 1 January 2022, you will need to fill in and file an IHT400 and IHT421 with HMRC, and wait 20 working days before you can apply to the registry for probate.
When should you seek legal advice?
While these changes are welcomed, applying for probate and administering an estate can still be a time-consuming and difficult process for bereaved families. At Ince, our experts can guide you through the process and provide advice on complex matters where IHT is payable, trusts are in place and/or assets are located overseas. Furthermore, our experts can assist PRs with their duties and advise on the potential risks associated with estate administration such as missing assets. If you require assistance with any of the issues raised above, please do not hesitate to contact a member of our Private Client team.
This article was co-authored by Chloe Smothers, Trainee Solicitor.
Please note that this article has been prepared for informational purposes only. The information above is not and should not be taken to be legal advice. You should not take action or omit to take action based on this information.