On the 1st January the Inheritance Tax (Delivery of Accounts) (Excepted Estate) (Amendment) Regulation 2021 came into effect.  Those regulations are designed to greatly simplify inheritance tax compliance with HMRC for “Excepted Estates”.

It was, and remains, a requirement for all estates in which there is an inheritance tax liability to file a full account with HMRC.  However, when there is no inheritance tax liability to pay and the estate is Excepted, then no full account is required.  In those circumstances the executors would file a short account with HMRC known as the “Return of Estate Information” (IHT205).  That shorter account would be delivered directly to the Probate  Registry thereby greatly simplifying the administration of an estate.

Previously an estate either had to be under the inheritance tax threshold (£325,000), have no tax to pay as a result of the transferable nil rate band, or otherwise be under the value of £1m with no tax to pay by virtue of a spouse or charitable exemption, in order to be ‘Excepted’.   In practice those categories covered the a large number of estates in which there is no inheritance tax liability and greatly assisted the administration of those estates.

From the 1st January the £1m threshold is raised to £3m.  There is also an increase in the limits of large capital gifts (either to individuals or trusts) in the 7 years prior to death and in the value of trust property that aggregates with the value of the estate. 

I appreciate that some of the detail does sound quite a mouthful!  The net effect however, and the take home point of these changes, is that a far greater number of estates will now no longer need to file a full inheritance tax account.  Moreover, for all Excepted Estates moving forward, the IHT205 is no longer required.   All that now needs to be declared to the Probate Registry is the following:-

• The gross value of the estate for inheritance tax

• The net value of the estate for inheritance tax

• The net qualifying value of the estate

• A declaration that an estate is Excepted

Changes are currently being made to the Governments online probate application system to incorporate the provision of these basic details to the Registry.

In summary the regulations are very good news indeed.  Whilst larger estates will always have to file a full account to HMRC, many new estates will avoid this unnecessary compliance in circumstances where they do not leave any inheritance tax liability.  It should also make the process simpler for lay executors applying for probate on their own behalf.

If you have any queries, relating to the issues raised in this blog, please do not hesitate to contact Alex Stanier on 01494 893 533