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We are sharing this update from ACCA, our professional body, for the interest of clients and contacts. The content is (c) ACCA

Increase in thresholds for reporting requirements IHT 205 from 1 January 2022

Following a review by the Office of Tax Simplification (OTS), on 23 March 2021 the government announced the reduction in reporting requirements for inheritance tax declarations and scrapping of mandatory reports where no tax is due.

What are the changes?

The changes will apply to deaths on or after 1 January 2022 and will mean that most non-taxpaying estates will no longer have to complete an Inheritance Tax (IHT) form to obtain probate or, in Scotland, confirmation.  Qualifying ‘excepted estates’ will instead only be required to provide three IHT estate values and make two simple declarations on the probate or confirmation application.

The excepted estates reporting requirements have been reduced for deaths on or after 1 January 2022 where the deceased was domiciled in the UK. These estates will no longer have to complete an IHT short form to obtain probate or confirmation.  They will instead only be required to complete the probate or confirmation application. For deaths on or before 31 December 2021 in England, Wales and Northern Ireland this is an eight page short IHT form 205.  In Scotland such estates are required to complete either a two or three page short IHT form depending on the value of the estate.

The most noteworthy change is that the gross estate limit for an exempt estate (ie where the spouse or charity exemption applies) will increase from £1m to £3m in order to qualify for the IHT205 account.

There have also been changes to the excepted estates qualifying criteria that will increase the number of non-taxpaying estates who don’t have to complete an IHT form.

Personal representative/agents may use this updated HMRC IHT checker tool to estimate the value of the estate.

Excepted estates qualifying criteria for deaths on or after 1 January 2022 where the deceased was domiciled in the UK

The ‘excepted estates’ qualifying criteria is amended as follows:

Low-value excepted estates

  • Regulation 4(2)(c)(i) has been amended to increase the limit on assets in a single trust from £150,000 to £250,000
  • Regulation 4(2)(d) has been amended to increase the ‘specified transfers’ chargeable value limit from £150,000 to £250,000.  The current guidance can be found in the IHT Manual at IHTM06018.

Exempt excepted estates

  • Regulation 4(3)(e) has been amended to increase the ‘exempt excepted estates’ gross estate limit from £1m to £3m (see IHTM06000)
  • Regulation 4(3)(c)(i) has been amended to increase the value limit on assets in a single trust from £150,000 to £250,000.  Where the trust includes assets that pass to the spouse or civil partner or charity, the value of assets in the trust will be limited to £1m (with a £250,000 limit on chargeable trust assets)
  • Regulation 4(3)(d) has been amended to increase the ‘specified transfers’ chargeable value limit from £150,000 to £250,000.  The current guidance can be found in the IHT Manual at IHTM06018.

Transferable nil rate band (TNRB)

For deaths on or before 31 December 2021, an estate making use of TNRB can only qualify as an excepted estate where the earlier death of the spouse/civil partner made no use of their nil rate band (NRB), that is the percentage transferred is 100%.  The rules for excepted estates and TNRB can be found in the IHT Manual at IHTM06024.

Regulation 5A(2) has been amended so that estates where some of the NRB was used by an earlier death can qualify as an excepted estate where:

  • the estate is a ‘low value excepted estate’ and the gross value of the estate is at or below the NRB/TNRB available
  • the estate is an ‘exempt excepted estate’ and the gross value of the estate is not more than £3m, and the net qualifying value of the estate is at or below the NRB/TNRB available.

It is estimated that more than 90% of non-taxpaying estates will not have to send IHT forms to HMRC each year when a grant of representation is required.

Useful resources

Latest HMRC IHT forms

ACCA technical factsheet: inheritance planning