13 July 2022

In this world nothing can be said to be certain, except death and taxes…

By Miranda Marshall, director, Hayes + Storr.

…so said Benjamin Franklin in 1789.

The rules for reporting the value of assets in a deceased person’s estate to HM Revenue and Customs (HMRC) changed on 1st January 2022.

Executors must ensure compliance with the requirements of HMRC. Acting as an executor makes you responsible for reporting the value of the assets in the estate you are administering and paying any Inheritance Tax (IHT). So, it is critical to make sure you follow correct procedures and know your duties.

The new rules are intended to make the probate process smoother, but you can easily be caught out if you do not understand them.

Under the old rules, before you could obtain probate, you had to report the value of all estates to HMRC. There was a short form (IHT205) and a long form (IHT400); one or other had to be submitted, even when no IHT was payable.

The new rules say that when there is no IHT to pay, you may not have to report to HMRC. If IHT is due, or if you fall into other categories, you must still send HMRC the long IHT400 form. .

The trap to watch, if you are an executor of an estate where there is no IHT to pay, is that some non-taxable estates still must be reported to HMRC where the death was after 1st January 2022.

Under the new rules a report to HMRC must be made on a non-taxable estate in a few specific scenarios:

• Gifts within the seven years of death totalling more than £250,000;
• Gifts with Reservation of Benefit’ where the title passed to another, but the deceased continued to benefit;
• Foreign assets of more than £100,000;
• A life insurance policy payable to anyone other than the spouse/civil partner;
• Where the deceased benefited from a trust worth more than £250,000, (or more than one trust);
• Not being domiciled in one of the three UK jurisdictions (England & Wales, Scotland or Northern Ireland). Different, more complex, rules apply in relation to foreign domiciled or ‘deemed domiciled’ persons. These terms have very specific legal meanings, so it is critical to seek specialist advice if the domicile of the deceased is in any doubt whatsoever;
• Where an estate exceeds £3million, HMRC require valuation details, even if no IHT is payable; such as where the estate passes to a spouse or charity.

It can be difficult to know whether reporting is needed. The law states that, if you are an executor, it is your responsibility to comply with HMRC’s requirements. So, if in any doubt, seek professional advice.

If IHT is not payable and you are satisfied that none of the reporting requirements exist, you can now obtain probate without sending in a form to HMRC. Even so, you must still obtain accurate valuations as of the date of death of all the estate assets, as the Probate Registry require these details.

IHT compliance remains only a small part of an estate administration. As an executor, your duties are to the beneficiaries. Your role is governed by succession and estate administration laws, and you can find yourself personally liable in you fall short of your duties. Being an executor is a big responsibility and should be tackled with care and diligence. It is wise to seek advice from a specialist solicitor.

If you are an executor and you are struggling with the IHT, the administration, or handling the beneficiaries, a solicitor can help to guide you through, or can handle the process from start to finish.

For further information, please contact Miranda Marshall on 01263 712835 or email miranda.marshall@hayes-storr.com.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.