What Are Excepted Estates? Is Probate Needed

Excepted Estates – what are they?

Excepted estates: most estates that don’t have any Inheritance Tax to pay are excepted estates. Note the most! In some cases, a full Inheritance Tax account will still be needed. You need to read through the whole page to get a clear picture.  If in doubt, contact us to access cost-effective professional advice to avoid penalties. This is a complex area, and a relatively high proportion of cases are likely to be investigated by HMRC.

The eminent lawyer, Lesley Kind explains the changes to excepted estates for deaths after 1st January 2022 far better than I can, and also draws attention to the possible difficulties that changes will make on subsequent sales of assets and the difficulty establishing base cost, which did not previously exist.  Note that the period during which HMRC can call in an estate for review has been doubled from 5 weeks to 10 weeks. For earlier deaths, read on:

The estate will generally be an excepted estate if any of these apply:

  • The total value is less than the Nil Rate Band of IHT (£325,000 at present) but you do need to be very careful that you have included everything which should be included which can (for example) include gifts made up to 14 years before (usually only 7).   If in doubt, you need advice as the penalties for getting it wrong are severe.
  • The estate is exempt –  everything (or everything over and above the Inheritance Tax threshold) was left to a spouse or civil partner living in the UK or to a ‘qualifying’ charity (and the estate is valued at under £1 million)
  • The deceased person was a ‘foreign domiciliary’ – they lived permanently abroad and died abroad and the value of their UK assets was less than £150,000.

An estate will also be an excepted estate if both of the following apply:

  • The estate is less than double the IHT nil rate band (£650,000 in 2013-26 tax years.)
  • All the unused IHT nil rate band from a deceased spouse or civil partner is transferable to the deceased as the first spouse/ civil partner to die had left everything to the person who has now died.
excepted estates
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If it is an excepted estate. then form IHT205 will usually be the correct form, plus form IHT217 if you’re transferring an unused Inheritance Tax threshold from a late spouse or civil partner to the deceased.

Excepted estate: an estate will NOT qualify if:

  • The estate is valued at more than the nil rate band.
  • If an estate worth more than £1 million is left to a spouse, civil partner or ‘qualifying’ charity.
  • The estate is worth more than double the nil rate band when all the unused nil rate band has been transferred from a deceased spouse or civil partner.
  • A nil rate band transfer is needed from a late spouse or civil partner to avoid paying IHT and the full nil rate band isn’t available – even if it is not needed.
  • The deceased had a permanent home outside the UK when they died but formerly had a permanent home within the United Kingdom.
  • Trusts: the deceased had assets in a trust worth over £150,000 or had more than one trust.
  • There we assets worth more than £100,000 outside the United Kingdom.
  • Gifts were made within 7 years before they died of over £150,000 after taking off the tax-free allowances.
  • Gifts into trusts were made.
  • The deceased benefited from a gift they had made, such as their house or car (this is called a ‘gift with reservation of benefit’.)
  • A life insurance paid out to a third party other than spouse / civil partner and they had also bought an annuity.
  • They had a personal pension from which they had not taken their full retirement benefits, and when they were terminally ill or in poor health they changed the death benefits payable on it to increase the value of the lump sum
  • They owned – or were the beneficiary of – an ‘Alternatively Secured Pension’ or unsecured pension.
  • They elected that property that they had given away should be part of their estate for Inheritance Tax, and not pay a ‘pre-owned asset’ charge
  • They were ‘deemed domiciled’ in the UK – this usually applies if the deceased wasn’t born in the UK but had lived here for the last 17 years, or was born in the UK but died within three years of emigrating.

In any of these cases, the estate is not an excepted estate and you must fill in a full Inheritance Tax account (form IHT400). Definitely, a reason to seek our professional help – 03 300 102 300! The last time I checked, an IHT400 could be 96 pages long. Not for the faint-hearted!

Excepted estates.