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Important new changes to Inheritance Tax from 1 January 2022



HM Revenue & Customs- (HMRC) have recently announced they will be changing the reporting requirements in respect of deceased persons’ estates.

Chartered Legal Executive, Kat King discusses the changes that will take affect from 1st January 2022 and who will be affected by these changes.

First, it is important to highlight that these changes are good news as they will simplify Inheritance Tax (IHT) reporting requirements and they will apply to the estates of those who die on or after 1st January 2022.

Current legislation

If an estate is classified as low value or exempt, then in most cases an “IHT205 Return of estate information” form needs to be completed and submitted to the Probate Registry. If the allowance of the deceased person’s late spouse is being claimed, another form is also required (called “IHT217 Claim to transfer unused nil rate band for excepted estates”).

The requirements for an estate to be classed as excepted are as follows:

  • The estate is not subject to IHT, and the value of the estate is less than the Nil Rate Band Allowance (currently £325,000)
  • On the death of the surviving spouse, the value of the estate is less than £650,000 (2x Nil Rate Band Allowance), when the allowance of the first spouse to die can be claimed
  • The deceased left their whole estate, worth less than £1,000,000, to their spouse or civil partner, or to a charity
  • If the deceased held assets in a trust, they would need to be worth less than £150,000 and only held in one trust
  • If the deceased made lifetime gifts within seven years before they died, the total value of those gifts cannot exceed £150,000
  • If the deceased person was a ‘foreign domiciliary’, i.e., they lived permanently outside of the UK, they died abroad, and the value of their assets in the UK is under £150,000.

For those more complex estates which do not meet the criteria above for an excepted estate, or when IHT needs to be paid, a full Inheritance Tax Account form (“IHT400”) needs to be submitted to HMRC.

What exactly is going to change?

From 1st January 2022 HMRC will reduce the number of forms that need to be completed and raise current limits, which means more estates will classify as excepted estates. The new legislation includes the following changes:

  • The requirement for completing the IHT205 and IHT217 forms is being scrapped for all estates classed as excepted
  • The spousal/civil partner/charity limit for an excepted estate will triple, so will increase from £1,000,000 to £3,000,000
  • If the deceased held assets in a trust, the limit of the value of those assets being held will increase from £150,000 to £250,000 in one trust.
  • If the deceased made lifetime gifts within seven years before they died, the total value that the gifts cannot exceed is being increased from £150,000 to £250,000
  • The new rules remove the excepted estate status for ‘foreign domiciliary’. If a property was owned in the UK or lifetime gifts of UK assets were made in excess of £3,000 in any tax year within seven years before the foreign domiciliary died, the full IHT400 form will be required.

What does this mean for me?

The estates of anyone who dies on or after 1 January 2022 will be affected by these changes if they are low value estates or exempt estates.

The increase in limits mentioned above will mean more estates will be treated as excepted estates and, as a result, the executor or administrator for the estate of a deceased person (Personal Representatives) will be required to complete less forms.

As the limits for excepted estates are being extended, in many cases the full IHT400 Inheritance Tax Account submission (where no IHT is payable) will no longer be required.

Overall, this is great news, as these changes will mean a lot of time and money can be saved when dealing with a deceased person’s estate which will be welcome news to bereaved families.

If you have any questions about the changes or wish to take this opportunity to get your estate in order, please contact Kat King on 01749 341805 or email kat.king@mogersdrewett.com. We are here to help.

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