New Forest

10/12/2021

Fewer estates will have to deliver Inheritance Tax accounts from 1 January 2022

Frustratingly, many estates where Inheritance Tax (IHT) is not due still require lengthy Inheritance Tax forms to be completed. The new measures, due to come into force for deaths on and after 1 January 2022, aim to reduce the number of low value and excepted estates where these forms are required. This welcome change will reduce the admin burden and cost for many executors going forward.

If any of the below conditions are met, the executors are able to complete the ‘short form’ – IHT205. This form is effectively a brief summary of the deceased’s personal information, assets and liabilities. The conditions are:

  • The estate value is within the nil rate band (£325,000)
  • The estate value is within the nil rate band x 2 (£650,000) where the nil rate band has been inherited by the widow/widower from the deceased spouse
  • The gross estate value is £1m or less and no IHT is payable due to an exemption (e.g. where the assets are left to a spouse/CP or a qualifying charity)

If these conditions are not met, the executors must complete the substantially longer and more detailed summary form IHT400. They must also complete supplementary schedules for each different asset, liability and relief. There of course represents a substantially increased admin burden for the executors, plus an increased professional fees cost, of filing these forms.

Under the new measures, the gross estate limit under condition 3 above is increasing to £3m, with the total amount of trust property including exempt amounts limited to £1m. The limit for chargeable trust property is also increasing £150,000 to £250,000.

With house prices rising and more estates failing to meet the conditions for the short form, these changes are very welcome.

If you have any questions about IHT, succession planning or probate, please do get in touch with Gemma Hedges on 023 8046 1259.

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