Increase in thresholds for reporting requirements IHT 205 from 1 January 2022
Following a review by the Office of Tax Simplification (OTS), on 23 March 2021 the government announced the reduction in reporting requirements for inheritance tax declarations and scrapping of mandatory reports where no tax is due.
The changes will apply to deaths on or after 1 January 2022 and will mean that most non-taxpaying estates will no longer have to complete an Inheritance Tax (IHT) form to obtain probate or, in Scotland, confirmation. Qualifying ‘excepted estates’ will instead only be required to provide three IHT estate values and make two simple declarations on the probate or confirmation application.
The excepted estates reporting requirements have been reduced for deaths on or after 1 January 2022 where the deceased was domiciled in the UK. These estates will no longer have to complete an IHT short form to obtain probate or confirmation. They will instead only be required to complete the probate or confirmation application. For deaths on or before 31 December 2021 in England, Wales and Northern Ireland this is an eight page short IHT form 205. In Scotland such estates are required to complete either a two or three page short IHT form depending on the value of the estate.
The most noteworthy change is that the gross estate limit for an exempt estate (ie where the spouse or charity exemption applies) will increase from £1m to £3m in order to qualify for the IHT205 account.
There have also been changes to the excepted estates qualifying criteria that will increase the number of non-taxpaying estates who don’t have to complete an IHT form.
Personal representative/agents may use this updated HMRC IHT checker tool to estimate the value of the estate.
The ‘excepted estates’ qualifying criteria is amended as follows:
Low-value excepted estates
Exempt excepted estates
For deaths on or before 31 December 2021, an estate making use of TNRB can only qualify as an excepted estate where the earlier death of the spouse/civil partner made no use of their nil rate band (NRB), that is the percentage transferred is 100%. The rules for excepted estates and TNRB can be found in the IHT Manual at IHTM06024.
Regulation 5A(2) has been amended so that estates where some of the NRB was used by an earlier death can qualify as an excepted estate where:
It is estimated that more than 90% of non-taxpaying estates will not have to send IHT forms to HMRC each year when a grant of representation is required.