UPDATE: Relaxation of Inheritance Tax (IHT) reporting requirements.
In March 2021, the Government announced that from 1 January 2022, changes would be made to simplify the reporting and compliance requirements during probate. The proposals for change followed a Government consultation designed to reduce the administrative burden faced by those dealing with IHT. The changes have now been enforced and mean that over 90% of non-taxpaying estates do not have to deliver IHT accounts when a grant of representation is required.
So then, what are the changes and what are their effects?
In order to understand the effect of the changes, it is important to put them in their legal context.
When someone dies, their personal representatives (‘PR’) must determine the value of their estate – the sum of their assets and liabilities – and calculate whether the estate is liable to IHT. In order to obtain a grant of representation, and thereby administer the estate, the PR must report the estate’s IHT liability to HMRC through an IHT account. There are two main types of IHT account:
- The IHT205 – this is a shorter form which is submitted to the Probate Registry at same time as the PR applies for the grant of representation. This can be applied for where the estate is an ‘excepted estate’ (i.e. it is of low value, it is exempt, or the deceased was not, has never been or never deemed to have been domiciled in the UK, provided conditions are met).
- The IHT400 – this is a much longer form which is submitted to HMRC before the grant of representation can be applied for. This account requires much more detail, and prior to the reforms outlined below, it was often necessary to file this even where there was no IHT liability.
The changes introduced by the Government are removing the requirement to complete an IHT205 account for excepted estates for deaths occurring on or after 1 January 2022. The PR will still need to report information relating to IHT liability, but this can be included in the probate or certificate of confirmation application. The most significant changes include:
- Where the estate is of low value (i.e. the gross value is lower than the IHT threshold), the limit of certain lifetime transfers and trust property has increase from £150,000 to £250,000.
- Where the estate is exempt (i.e. the gross value is higher that the IHT threshold, but the spousal or charity exemption brings the net value under the IHT threshold);
- The value limit of the gross estate has increased from £1 million to £3 million.
- The value limit of assets on chargeable trust property has increased from £150,000 to £250,000, but the value of assets in the trust is limited to £1 million where the trust includes assets which pass to the spouse or charity.
- The value limit for ‘specified transfers’ has been increased from £150,00 to £250,000
If you are a Personal Representative and you need assistance with obtaining a grant of representation or with estate administration in general then please get in touch with a member of Mercers highly experienced Private Client Department to discuss how we can assist you.
Written by Tom Spratley – Trainee Solicitor.