Dealing with probate applications and inheritance taxes can be really tricky for anyone, especially executors of a will who have to get through complex tasks while struggling to come to terms with the death of a loved one.
One of the biggest questions we hear from clients is about whether or not they have to pay inheritance tax, which is where the term excepted estate comes up.
In this article, we will help you better understand the topic by covering:
What is an excepted estate;
How you register an excepted estate;
How an excepted estate impacts probate applications.
What is an excepted estate?
An excepted estate is an estate where a personal representative or executor does not have to submit a full inheritance tax account to HMRC.
An executor of a will can work out if an estate is excepted after they have valued the estate for probate.
What are the three primary types of excepted estate?
There are three main categories of excepted estate:
1. Low-Value Estates: These are estates where the total value of the person's assets and any gifts they gave away while they were alive doesn't go over a certain limit, called the "nil rate band." If it's under that limit, it's considered a low-value estate.
2. Exempt Estates:. Here, the total value of the person's stuff and any taxable gifts they made while alive doesn't go over a specific limit. And the estate has to go to their spouse, civil partner, or a charity. If it does and it's under that limit, it's an exempt estate.
3. Non-Domiciled Estates: This one's about people who aren't officially living in the UK, or they're considered not to be from the UK for tax purposes. If their assets are worth no more than £150,000 or they are not considered to be from the UK, they fall into this category.
While these types of estates are not subject to inheritance tax, confirming that the estate falls within one category is crucial to eliminating potential tax consequences.
How do you know if an estate qualifies as excepted?
For an estate to qualify as excepted, it needs to meet certain rules.
As of January 1st 2022, an estate can be excepted if:
It’s worth less than the inheritance tax threshold;
It’s worth £650,000 or less, and any unused threshold is being passed on from a spouse or civil partner who passed away first;
It’s worth less than £3 million, and the person who passed away left everything to their spouse or civil partner in the UK or to a qualifying charity;
The person who passed away lived outside the UK permanently when they died, and the value of their UK assets is under £150,000.
Do you need probate for excepted estate?
So, the big question is whether you still need probate for an excepted estate.
It’s possible that you may not need probate if the person who passed away only left behind savings or all of their assets passed on to surviving owners, like a spouse or joint tenant.
However, if the estate is more complicated, and the person who passed away owned assets by themselves, probate may be required.
How do you register an excepted estate?
To get started, all you have to do is register the estate with the HMRC. Once you do that, they'll give you a tax reference number.
With the tax reference number, you can file the necessary tax returns for the estate and accurately fulfill your duties as executor.
Registering an excepted estate may seem daunting, but with some guidance, you can navigate the process efficiently and ensure that the estate's affairs are in order.
The process varies based on the year of death. For deaths before April 6th, 2017, use form IHT205. For deaths on or after that date, use form IHT217 instead.
Carefully report the estate's value and comply with all HMRC regulations to avoid penalties and legal issues. Consulting a financial professional can help ensure everything is done correctly.
Get legal help with probate and inheritance tax
In a nutshell, an excepted estate is one that doesn’t need to submit a full inheritance tax report. This can affect what an executor has to do when dealing with the estate.
It’s a good idea to talk to a wills, trust and probate solicitor when planning your estate to fully understand inheritance tax, including what kinds of assets qualify, any limits, and what the current law says. This way, you cam make smart choices about what happens to your assets and property when you pass away.
All in, dealing with an excepted estate can be tricky. That’s why it’s a good move to get help from experts who know their stuff. If you’re the person in charge of handling an excepted estate, it’s a great idea to get in touch with someone who can give you tailored advice and help with forms. Get in touch with us today to get help with probate applications and inheritance tax.