Changes to Excepted Estates

From 1 January 2022, the reporting requirements for Excepted Estates will change. This blog aims to give you a whistle-stop tour of the changes that both clients and practitioners should be aware of.

What is an Excepted Estate?

Excepted Estates are those below the current Inheritance Tax (IHT) threshold in England and Wales. Usually if an estate has no IHT to pay, it will be excepted.

For deaths after April 2010, an estate will generally be excepted if:

  • It is a small estate – i.e. under the £325,000 IHT threshold;
  • It is an exempt estate – this is normally where the deceased left everything over and above the £325,000 threshold to a spouse, civil partner, or qualifying charity; or
  • The value of the estate is less than twice the IHT threshold (£650,000), provided 100% of the threshold from a spouse or civil partner who has predeceased is available.

Any estate which meets one of these criteria, and where the deceased died after 1 January 2022, will be subject to the new reporting rules.

What are the current reporting requirements?

On any Excepted Estate where the deceased died before 31 December 2021, the personal representatives (or a solicitor acting on their behalf), are required to submit a shortened version of the full IHT form – an IHT205 - to HMRC. If the estate is also claiming the unused IHT threshold of a spouse or civil partner who predeceased, the personal representatives are also required to submit IHT form IHT217.

What is changing?

From 12 January 2022, where a deceased died on or after 1 January 2022, the personal representatives are no longer required to submit either an IHT205 or IHT217 as part of the Probate process.

After this date, the online Probate system, MyHMCTS, will instead request the following information:

  • The net value of the estate for IHT purposes;
  • The gross value of the estate for IHT purposes;
  • The net qualifying value of the estate; and
  • If applicants are claiming the IHT threshold of their spouse or civil partner who has predeceased.

Any applications where death occurred before 1 January 2022 will continue to be processed under the old system.

Other significant changes effective from 12 January 2022 include:

  • For small estates, the limits on the value of both trust property and specified transfers, in the seven years before death, are increased from £150,000 to £250,000;
  • For exempt estates, the limit on the gross value of the estate is increased from £1 million to £3 million (although the total amount of trust property is limited to £1 million), and again the limits on the value of both trust property and specified transfers in the seven years before death are increased from £150,000 to £250,000; and

There will be no changes to the Excepted Estates rules where the deceased was not domiciled in the UK at the date of their death and had never been domiciled, or deemed domiciled, in the UK during their lifetime.

What does this mean for personal representatives and practitioners?

On the whole, this should make the process of applying for a Grant of Probate on a small or Excepted Estate less burdensome for personal representatives and probate practitioners.

HMRC will be submitting guidance on what constitutes an Excepted Estate in due course and their online IHT checker tool will also be updated to reflect the changes.