Mark McLaughlin outlines circumstances where full inheritance tax returns do not need submitting to HMRC due to measures to ease administrative burdens.
Death and taxes are inevitable, it is said. However, the last thing family members and friends probably want to think about following the death of a loved one is submitting an inheritance tax (IHT) return to HM Revenue and Customs (HMRC).
You’re excused …
Fortunately, an IHT return (on form IHT400) does not generally need to be submitted to HMRC in respect of 'excepted estates’ if there is no IHT to pay. There are three categories of excepted estates: low value, exempt excepted and foreign domiciliaries.
In very broad terms, an estate will usually be excepted if any of the following apply:
- its value is below the current IHT threshold;
- the estate is worth £650,000 or less and any unused threshold is being transferred from a spouse or civil partner who died first;
- the deceased left everything to a spouse or civil partner living in the UK or to a qualifying charity, and the estate is worth less than £3 million (NB for deaths before 1 January 2022, the limit is £1 million);
-
the deceased was a ‘foreign domiciliary’ when they died and the value of their UK assets was under £150,000, no chargeable gifts over £3,000 were made in any of the seven years before the death, and the deceased’s estate did not include overseas property with value attributable to UK residential property.
Additional excepted asset conditions apply if the deceased’s estate includes one or more trusts. Further guidance is available on the gov.uk website www.gov.uk/valuing-estate-of-someone-who-died.
… or are you?
However, a full IHT return is still required even though no IHT is due if the deceased:
- gave away over £250,000 in the seven years before they died (for deaths from 1 January 2022, previously £150,000);
- made a ‘gift with reservation of benefit’ in the seven years before they died;
- left an estate worth more than £3 million (from 1 January 2022, previously £1 million);
- died before 1 January 2022 and had inherited part of the IHT nil rate band from a previous spouse or civil partner;
- was deemed domiciled in the UK;
- had foreign assets worth more than £100,000;
- was foreign domiciled when they died but had previously been UK domiciled;
- had a life insurance policy that paid out to someone other than their spouse or civil partner and also had an annuity;
- had increased the value of a lump sum from a personal pension to be paid after their death, while they were terminally ill or in poor health; or
-
had agreed that property they gave away during their lifetime would be part of their estate rather than pay ‘pre-owned assets’ income tax.
Less information
Even if the estate is excepted under these rules, where letters of administration or a grant of probate are sought (for deaths from 1 January 2022), the application must include the value of the deceased’s estate.
Practical tip
The excepted estates rules are potentially complex. The above is only an outline of the rules. For detailed guidance, see HMRC’s Inheritance Tax manual at IHTM06000-IHTM06063
