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Changes to Inheritance Tax Reporting for Estates in 2022

Land Tax

If you are dealing with an application for a Grant of Probate or Letters of Administration, it is important to be aware of some significant changes to requirements when reporting information about an estate to HMRC.

HMRC have agreed to simplify the process, and new rules have come into force for “excepted estates” applicable to deaths which occurred on or after 1st January 2022. This means that more estates will fall within the excepted estates threshold and there will be less estates which require a full Inheritance Tax account (IHT400) to be completed.

There are three types of excepted estate:

  • Low value estates (those with a gross value below the Inheritance Tax threshold)
  • Exempt estates (those with a gross value not exceeding £1,000,000)
  • Estates of non-UK domiciled individuals with limited UK assets

So, what are the changes?

  • For deaths occurring before 1st January 2022, where a person died after their spouse, they are able to claim their spouse’s unused nil rate band allowance for Inheritance Tax. If only a portion of the nil rate band is available to be transferred, rather than the whole amount, the IHT400 must be completed. The new regulations now allow for any portion of the nil rate band to be transferred, without the need to complete the IHT400.
  • There is an increase on the limit on trust assets and on chargeable transfers (gifts) from £150,000 to £250,000. The limit for certain trust assets is increased to up to £1,000,000 if the trust property is passing to a spouse, civil partner or charity.
  • For exempt estates, the new threshold for the gross value of the estate will be increased from £1,000,000 to £3,000,000.
  • Estates where the deceased was of foreign domicile will be subject to two extra requirements, namely that the deceased must not have been beneficially entitled to any UK residential land owned through a close company or partnership, and they must not have made any chargeable transfers in the seven years before death. If either of these apply, then the IHT400 must be completed.
  • HMCTS will have one month to pass the information to HMRC. HMRC will now have 60 days, rather than 35 days from the issue of the Grant of Representation to ask for any additional information.

These changes are expected to significantly reduce the reporting and administrative requirements for 90% of non-taxpaying estates requiring probate. This should, hopefully, save HMRC and clients both time and money.

It is important to note that the requirements for deaths which occurred before 1st January 2022 remain unchanged.

If you require any help or assistance with the probate process and HMRC requirements, please get in touch with a member of our Wills and Estate Planning team on 01256 320555 or mail@clarkeandson.co.uk.

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