Policy paper

Inheritance Tax: Reduced reporting requirements

Published 29 October 2021

Who will be affected

Personal representatives administering death estates in England and Wales, Scotland and Northern Ireland.

General description of the measure

This measure widens the circumstances when full Inheritance Tax (IHT) accounts are not required to be delivered to HMRC for estates where the deceased was domiciled in the UK, and reduces the simplified information that is reported instead.

It also clarifies the reporting requirements for estates where the deceased was never domiciled in the UK, and aligns the period in which HMRC may make enquiries into estates where accounts are not required at 60 days from the date of probate or confirmation (in Scotland).

Policy objective

The measure will reduce IHT reporting burdens for more than 90% of non-taxpaying estates requiring probate or confirmation, and ensure that estates are not excepted from delivering IHT accounts where the deceased was never domiciled in the UK and IHT is due.

Background to the measure

This measure implements a commitment given in Command Paper ‘Tax Policies and Consultations Spring 2021’ (CP 404, March 2021) to reduce administrative burdens for those dealing with IHT. This followed recommendations by the Office of Tax Simplification in its first report on Inheritance Tax, published in November 2018, that the conditions that must be met to be able to complete a short IHT form should be updated.

Detailed proposal

Operative date

The measure will have effect and apply to deaths on and after 1 January 2022.

Current law

Section 256 of the Inheritance Tax Act 1984 provides HMRC with powers to make regulations dispensing with the delivery of IHT accounts as specified in or determined under the regulations.

The regulations for this purpose are the Inheritance Tax (Delivery of Accounts) (Excepted Estates) Regulations 2004 (SI 2004/2543) (as amended). Broadly, they provide for 3 categories of excepted estate:

• low value excepted estates (regulation 4(2))
• exempt excepted estates (regulation 4(3))
• foreign domiciliaries (regulation 4(5))

Regulation 6 prescribes the information to be produced instead of an IHT account, and regulations 8 and 9 provide for when a person providing such information is discharged from tax.

Proposed revisions

For low value and exempt excepted estates, the information to be produced instead of an IHT account is simplified, and the relevant monetary limits are increased as follows:

• the limit for the aggregate of chargeable transfers and exempt ‘normal out of income’ transfers made prior to death, is increased from £150,000 to £250,000
• the limit for chargeable trust property is increased from £150,000 to £250,000

For exempt estates, the value limit in relation to the gross value of the estate is increased from £1 million to £3 million with the total amount of trust property including exempt amounts being limited to £1 million.

For estates of foreign domiciliaries, the revisions make clear that the estate is not an excepted estate if chargeable gifts over £3,000 in any year were made in the 7 years before the death, or it contains overseas property with value attributable to UK residential property.

The meaning of ‘IHT threshold’ is revised to reflect the IHT nil rate band multiplier where less than 100% of an unused IHT nil rate band is transferred to the deceased.

The time limit for the three UK Court Services to transmit the information produced instead of an IHT account to HMRC is extended from 1 week to 1 month, and the period in which HMRC may make enquiries into the estate is aligned at 60 days from the grant of probate or confirmation.

Summary of impacts

Exchequer impact (£million)

2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027
nil	nil	nil	nil	nil	nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure will have a positive impact on an estimated 230,000 non-taxpaying excepted estates by simplifying the information to be provided to HMRC by their personal representatives, and, under associated process reforms, removing the need to send forms to HMRC in relation to those estates when the deceased person was UK domiciled at the time of death. This will reduce administrative burdens on families at a difficult time when a family member has passed away.

The changes to the monetary limits and other rules will remove personal representatives administering an estimated further 10,000 non-taxpaying IHT estates from the need to complete an IHT account.

We estimate that around 40% of the estates impacted by these changes (approximately 95,000 a year) are administered by personal applicants (with the remainder using solicitors and probate practitioners).

This measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

HMRC does not hold equalities information on individuals who make personal applications, however it is not anticipated that there will be impacts on groups sharing protected characteristics.

Impact on business including civil society organisations

We estimate that around 60% of the 240,000 estates a year affected by this measure (approximately 145,000 a year) are administered by probate practitioners and solicitors who will be impacted in a similar way as for personal applicants (see ‘Impact on individuals, households and families’) for each estate that they act for.

Accordingly, customer experience will see an improvement. This measure is expected to significantly reduce the continuing costs of these businesses, who will no longer need to complete the required forms on behalf of their clients and return these to HMRC. This impact will be kept under review through stakeholder engagement.

One-off costs will include familiarisation with the changes. There are not expected to be any continuing costs.

There is expected to be no impact on civil society organisations.

Operational impact

The revisions will require changes to forms and guidance. HMRC will incur operational costs estimated at £600,000 to make these changes.

Other impacts

The revisions will impact on forms used to obtain probate or confirmation. HMRC are working with HM Courts and Tribunals Service, the Scottish Courts and Tribunals Service and the Northern Ireland Courts and Tribunals Service on the necessary changes.

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through information collected from compliance checks.

Further advice

If you have any questions about this change, contact Alan Hackney by email alan.hackney@hmrc.gov.uk or telephone 03000 562716.

Declaration

The Rt Hon Lucy Frazer QC MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.