Inheritance tax reporting rules

When someone dies, their estate will generally be handled by a Personal Representative.

When someone dies, their estate will generally be handled by a Personal Representative. Their role is to establish the value of the estate, to obtain the necessary Grant of Representation, to gather in the assets and to distribute the estate to the correct beneficiaries.

One of the main responsibilities of the Personal Representative is to ensure that any inheritance tax (IHT) due on the estate is properly calculated, declared to HMRC and paid on time.

Many people do not appreciate that being a Personal Representative involves considerable personal responsibility and they can remain liable for any unpaid debts of the deceased, even after the estate has been distributed to the beneficiaries. This liability can extend to paying any IHT that should have been paid.

HMRC has made changes to the reporting requirements if the person died on or after 1 January 2022. It is no longer necessary to complete an HMRC tax form if the person:

  • died after 1 January 2022 and
  • the estate is an excepted estate; and
  • the person was living in the UK.

Even seemingly fairly straightforward estates require careful consideration. It is not necessary to obtain a Grant of Representation in every case but if a Grant is needed, it is then necessary to establish whether the estate is an 'excepted estate'. What counts as an excepted estate depends on when the person died. If the person died on or after 1 January 2022, an estate is usually an excepted estate if any of the following apply:

  • its value is below the current IHT threshold of £325,000
  • the estate is worth £650,000 or less and any unused threshold is being transferred from a spouse or civil partner who died first
  • the deceased left everything to a spouse or civil partner living in the UK or to a qualifying charity and the estate is worth less than £3 million
  • the deceased was living permanently outside the UK when they died and the value of their UK assets is under £150,000.

The simplified rules provide that for deaths on or after 1 January 2022, the Personal Representatives do not need to file an IHT form with HMRC but it is still necessary to give details of the assets for which a Grant of Representation is required (along with other information) on a specified form.

It can be seen therefore that it is essential for Personal Representatives to ensure that they properly calculate the value of the estate and complete and submit the correct forms to HMRC. It is for this reason that many Personal Representatives may decide that their position is best protected by taking specialist legal advice from a firm of probate solicitors. The cost of these legal fees can be met by the estate of the deceased.

To discuss this or any other private client matter, contact us.