Following a report published by the Office of Tax Simplification, HMRC has announced changes to their requirements for when Inheritance Tax accounts must be completed. These changes aim to reduce the number of estates where an Inheritance Tax account will be required in order to simplify and streamline the Inheritance Tax process.

Under the previous regime there were two different forms of Inheritance Tax Accounts. The first was a short form Inheritance Tax account (in form IHT205) which was accepted in three circumstances:

  1. Where the total value of the estate was within the Inheritance Tax threshold (depending on the availability of the Nil Rate Band and Transferable Nil Rate Band this could be up to £650,000)
  2. Where the estate was exempt from paying Inheritance Tax (due to a charitable or spousal exemption) and the total value of the estate was less than £1 million
  3. Where the deceased was domiciled outside the UK with assets in the UK worth less than £150,000

For all other estates, a much longer Inheritance Tax account (in form IHT400) was required, within 12 months of the date of death.

Under the new system of Inheritance Tax accounts, a short form Inheritance Tax account (in form IHT205) will no longer be required in the circumstances above. Instead personal representatives will simply need to declare the gross and net value of the estate when making the probate application and make a declaration that the estate is exempt from the need to complete a full Inheritance Tax account.

In addition, HMRC have also widened the requirements set out above, so that more estates will fall within this simplified process. Of particular note is the increase from £1 million to £3 million for estates which are exempt from paying Inheritance Tax. These changes are now in effect for any estate where the deceased died after the 1st January 2022.

The result of these changes is a welcome simplification for personal representatives. It should also enable HMRC to improve response times for estates where there is a requirement to complete a full account and pay Inheritance Tax.

The Wilkes Partnership can assist with preparation of Inheritance Tax accounts and also more generally with the estate administration process. We can also provide advice about these changes and the consequences for personal representatives who are unsure about their obligations for reporting and paying Inheritance Tax. Please contact Rachael Chambers on [email protected] or 0121 710 5969 if you would like more information or advice.