Inheritance Tax Update: Notes for Executors

The Government has decided not to increase the rates of Inheritance Tax (IHT) but to freeze the present levels of Nil-rate Bands (NRBs) until 2025-26.  Whilst that sounds good, the ‘tax take’ will steadily increase because much wealth in the UK is tied up in houses and their value has increased dramatically recently. 

Thus, at the level that affects many families, the first £1,000,000 of value in the estate of the last to die of husband and wife, or of Civil Partners (CPs), may well escape tax; but £1,000,000 does not go very far in some parts of the country.  So families will be drawn into tax who were not expecting it.  I commented on this in greater detail in my article ‘Looking after the family finances in the aftermath of the pandemic’.

Where family wealth exceeds £2,000,000 on the death of the surviving spouse or CP, there is a cutting back of the Residential NRB and of the Transferable Residential NRB.  As values increase with inflation, more tax will be gathered.

Now for the good news.  Where no tax is due, the procedure is to be simplified with effect from 1st January 2022.

    Where no tax is due, the procedure is to be simplified with effect from 1stJanuary 2022.

    The problem is this.  It may often appear that no IHT will be due on an estate but, under the existing rules, the executor often still has to fill in a fairly complicated tax form before the grant of probate can issue.  That holds up access to the estate, causing not only practical issues in paying debts but distress to bereaved family members.

    Excepted estates

    These are, briefly, simple estates of moderate value on which no IHT is due.  For deaths on or before 31st December 2021 in the UK (apart from Scotland) an 8-page form is required.  The Scots manage with a form only 2 or 3 pages long.  There are forms for estates where the person was not domiciled in the UK.

    In respect of deaths on or after 1st January 2022 the 8-page form will no longer be needed.  Instead, all that will be needed is a declaration in the form to apply for probate (which does ask for the value of the estate).  The executor must declare that the estate is an excepted one and whether a claim is made to unused NRB or a spouse or CP who predeceased the person who has now died.

    The executor must still state:

    • the gross value of the estate for IHT;
    • the net value of the estate for IHT; and
    • the net qualifying value of the estate for IHT.

    However, this may prove to be not so much simpler than the old regime, because the executor will still have to ‘do a proper job’ in establishing values, just as in the past.  These are values ‘for IHT’ so not a simple total of assets remaining, and debts outstanding, at date of death.  For example, the gross value of the estate must include the value of some, but not all, lifetime gifts.  The net value for IHT takes account of ‘allowable’ debts.  The net qualifying value for IHT is found after allowing for spouse or Civil exemption or charity exemption, but bear in mind that exemptions are not the same as reliefs, such as those available in respect of some forms of property.

    Where to find the law

    Often, the problem for the lay person is not knowing where to find the law.  There are many websites that proclaim the law but are coy as to the precise legislation.  There may be two reasons for this.  They want to drive custom to their business, which is fair and reasonable.  The second possible reason is that not every member of staff has actually read the legislation…

    The diligent self-help person should therefore know that the main details for the above are the (catchily named) Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) Regulations 2021, which amend the 2004 Regulations.  The 2021 Regulations are the ones that reflect the changes and reference should be made to the 2004 Regulations to understand the full picture.  Anyone wanting to deal with an estate without help from a professional should also look at an online checker tool at https://www.gov.uk/valuing-estate-of-someone-who-died/estimate-estate-valuewhich is to be updated.  This may help people to establish the values that they need for the remaining probate forms.

    What has not changed

    The problem for the general public is that to establish whether the new simpler procedure will apply still involves a lot of research.  The duty to take care is just the same as before.  The rules for lifetime gifts are unchanged, in all their complexity.  The workings of the Residential NRB and the Transferable Residential NRB are just as detailed as before.  As you will see from my article ‘So: what about CGT: has there been a reprieve?’, the Government finds it incredibly hard to simplify tax law.

    The duty to take care is just the same as before. 

    By all means deal with the estate of which you are executor yourself, if you can.  However, if in doubt, therefore, get help from someone with experience of this kind of work.  The cost may pay for itself in the long run.

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