Rebecca Towey

+44 (0)1733 887678 rjtowey@greenwoodsgrm.co.uk

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Inheritance Tax reporting to be simplified from 1 January 2022

Wealth Preservation / 07 January 2022

In 2021, HM Treasury’s Office for Tax Simplification made various suggestions regarding the submission of inheritance tax returns. As a result, HMRC will be implementing various changes to inheritance tax reporting with effect from 1 January 2022.

Under the old rules, all estates where a grant of probate is required must complete an inheritance tax return as part of the grant application.  This may be a full inheritance tax return (IHT400) or a summary return (IHT205) where the estate is considered an ‘excepted estate’.

Under the new rules, if a person dies on or after 1 January 2022, domiciled in the UK, with an excepted estate, the personal representatives may no longer need to complete an inheritance tax return.

An excepted estate may be a low-value estate or an exempt estate.

Where an estate is low value and below the nil rate band, certain conditions must be met for it to be considered an excepted estate.  These have been amended under the new rules as follows:

  • the value of any gifts made in the seven years prior to the date of death has been increased from £150,000 to £250,000.
  • the value of chargeable trust property is increased from £150,000 to £250,000.

An exempt estate is one where the gross value is higher than the nil rate band, but no inheritance tax is payable as spouse or civil partner exemption applies or charity exemption applies.  Where an estate is an exempt estate, the following will now apply:

  • the gross value of the estate must be under £3 million. This has been raised from the previous threshold of £1 million.
  • the total amount of trust assets held in a single trust is increased to £1 million from £150,000.
  • the value of any gifts made in the seven years prior to the date of death has been increased from £150,000 to £250,000.

 

Where a transferable nil rate band is available on the second death of a married couple or civil partners, this will no longer need to be the full transferable amount for an IHT205 to be completed.

The changes to the rules are aimed at simplifying matters for non-taxable estates and mean that more estates will require an IHT205 rather than an IHT400.  However, where inheritance tax is payable, there are no changes and an IHT400 is still required.

 

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This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. This update relates to the prevailing circumstances at the date of its original publication and may not have been updated to reflect subsequent developments. If you have general queries about our updates, please email: mailinglists@greenwoodsgrm.co.uk

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