Inheritance Tax Reporting Changes Effective from 1 January 2022

Following changes to the excepted estates rules from 1 January 2022, certain Inheritance Tax forms can no longer be used for deaths after 31 December 2021 where the estate is non-taxpaying. A different process must be followed.

The new rules apply to estates where:

  • The aggregate of chargeable transfers and exempt ‘Normal Expenditure out of income’ transfers made prior to death is below £250,000.
  • The gross value of the estate is below £3 million with the total amount of trust property including exempt amounts being limited to £1 million.
  • The deceased was Non-UK domiciled  no chargeable gifts over £3,000 in any year were made in the seven years before the death and the estate did not contain an overseas property with value attributable to UK residential property.

The following forms should not be used for deaths after 31 December 2021:

  • IHT205 (return of estate information).
  • IHT217 (claim to transfer unused nil-rate band for excepted estates).
  • C5 (SE) (2006) (information about small estates if the deceased was a permanent resident of Scotland).
  • C5 (2006) (return of estate information if the deceased was a permanent resident of Scotland).

Instead of completing the forms, the personal representatives must include the following on the probate or confirmation application:

  • A declaration that the estate is an excepted estate.
  • If they are claiming the Transfer of unused nil rate bands.
  • Three valuations of the estate for inheritance tax purposes.

This change is in addition to the increase in probate fees which takes effect from 26 January 2022.

Fees are currently £155 for professionals and £215 for non-professionals and will increase to £273 across the board for applications submitted on or after that date. Estates below £5,000 remain exempt from charge.

The Law Society president commented … “we query why the UK government has decided to increase fees at this time, particularly as the probate service is still facing delays. In 2020, people had to wait 12 to 14 weeks on average to receive their grant. This is unacceptable, the service must be timely and allow executors to settle a loved one’s estate.”