Probate and Inheritance Tax – which estates are exempt from HMRC reporting?

From 1st January 2022, inheritance tax reporting requirements have been reduced for 90% of estates that require probate, but don’t have an IHT liability. These are known as excepted estates.

Excepted estates explained

-       those where the value is below the Inheritance Tax threshold (or nil rate band)

-       those that are exempt (if everything passes to a surviving spouse or to charity and the estate is worth less than £1m) and finally

-       those where the deceased lived abroad

Until 2022, an Inheritance Tax account for the estate of the deceased person had to be sent to HMRC and any tax paid – if relevant - before the grant of representation could be obtained. This included excepted estates.

The 10% that must still report

This is no longer the case for the vast majority of non-IHT paying estates. The 10% who will still need to submit information to HMRC before probate can be granted are as follows:

-       First - Excepted estates where there have been chargeable transfers and exempt ‘normal out of income’ transfers made prior to death. The reporting threshold has been increased from £150,000 to £250,000

-       Second - Excepted estates where there is chargeable trust property. The limit here has increased from £150,000 to £250,000

-       Third and finally, exempt estates worth more than £3m (which is up from £1m)

These changes are expected to reduce the paperwork burden for millions of loved ones, businesses and charities.