Reporting the Value of an Estate

When a person passes away, their estate is often subject to Inheritance Tax (IHT), in which case the value of the estate must be reported to HM Revenue and Customs (HMRC) so that the correct amount of IHT is paid and to avoid any potential penalties or disputes with HMRC. This guide will help you to navigate the reporting process, and will also list occasions where the full details must be reported even if there is no IHT to pay.

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The Timelines

If you find that you need to report the details of the estate, it will need to be done within the first 12 months following the date of death, or there will be penalty fees to pay. Please note that any inheritance tax will need to be paid in the first 6 months, and the forms used in reporting the details of the estate can be a good tool for calculating how many tax is due.

Sending Details when no Tax is due

There are times when you have to send full details even when no tax is due if the person who died:

• gave away over £250,000 in the 7 years before they died (£150,000 if the person died on or before 31 December 2021)
• gave gifts then continued to benefit from them in the 7 years before they died
• had agreed that property they’d given away during their lifetime would be part of their estate rather than pay a pre-owned asset charge
• has paid into any trusts
• left an estate worth more than £3 million (more than £1 million if they died on or before 31 December 2021)
• died on or before 31 December 2021 and had inherited part of the Inheritance Tax threshold from a previous spouse or civil partner
• had a life insurance policy that paid out to someone other than their spouse or civil partner and also had an annuity
• had increased the value of a lump sum from a personal pension to be paid after their death, while they were terminally ill or in poor health
• was ‘deemed domiciled’ in the UK or was living permanently outside the UK when they died but had previously lived in the UK
• had foreign assets worth more than £100,000

Most estates do not need a full detailed report, as they fall into the ‘Excepted Estates’ category.

Excepted Estates - When you do not need to send details

Excepted Estates do not include any of the above scenarios and align to some other rules depending on whether they died before or after 1st January 2022.

If the person died on or after 1 January 2022, the estate is an excepted state if:

• its value is below the current Inheritance Tax threshold
• the estate is worth £650,000 or less and any unused threshold is being transferred from a spouse or civil partner who died in the previous 2 years. Basically, if you’re single then you * have £325k tax threshold, if you’re a couple, it’s £650k total as it’s £325k each
• 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 (a ‘foreign domiciliary’) when they died and the value of their UK assets is under £150,000

If the person died before 1 January 2022, the estate is an excepted state if:

• its value is below the Inheritance Tax threshold at the time the person died
• the deceased left everything to a surviving spouse or civil partner living in the UK or to a qualifying charity and the estate is worth less than £1 million (search the charity register for registered UK charities)
• the deceased was living permanently outside the UK (a ‘foreign domiciliary’) when they died and the value of their UK assets is under £150,000

If you are unsure about how these rules apply to you

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The information you will need for a grant of probate

If the estate is an excepted estate, you do not need to report the full details, however if the date of death is before 1st January 2022, you will need to fill in the IHT205 form. Either way, you will need the following values in order to fill out your probate application:

• the estate’s gross value - this includes the total value of all the person’s assets and any gifts they made in the 7 years before they died
• the estate’s net value - this is the gross value minus any debts, such as a mortgage or funeral costs
• If they died after 1st January 2022, you will also need the estate’s net qualifying value - this is the net value minus any assets left to spouses, civil partners, charities or assets that are exempt from IHT for other reasons

If you need to report the full details

You will need to fill in the form IHT400. This should be provided for you by HMRC in a big pack, which will also include a guide to completing it, and commonly used ‘schedules’. It’s a good idea to make a copy of any forms before you fill them in, answer the questions in a word document as a draft or use an online copy so that you can copy your answers onto the forms once you’re ready.

Once you have completed the forms, we recommend that you create copies of the filled in versions as you will need some of your answers when you apply for probate, and also so that your records are complete and you have a reference of what you send to HMRC.

How does IHT400 work?

This form gives HMRC a summary of the estate value and what type of assets were held by the deceased in order to open your inheritance tax account with them. The form will ask you for details about the deceased, the executor and the will, before asking a series of questions around the circumstances of the estate and the assets. Most questions will refer you to a ‘schedule’ where you will be asked for more details on the assets or the deceased. You only need to fill in the schedule if it is relevant.

After the section on the schedules, there are a number of questions around the financials, which will be used to create a total IHT amount. These questions reference the schedules, so it’s advisable to complete the relevant schedules first, before copying these figures across to IHT400. You will then be asked to do some maths to deduce how much IHT you should have / need to pay. You will hopefully have paid off some or all of the inheritance tax before submitting this form, so this will be used to determine if more is owed or if you are due a refund.

At the end of the form, there is a handy checklist which will help you to ensure that you send all the relevant information to HMRC.

What happens next?

HMRC will use the IHT400 to create an IHT account for you. If there is nothing outstanding to pay, you may apply for grant of probate in 15 or more days, and you will receive any refunds due as part of this process. If there is still tax to pay, the court will not give you a grant of probate until the tax is paid.

I need help!

We understand that this can be a difficult and overwhelming process, and we want to ensure that you have the support and guidance you need.

Our team of experts can provide you with advice and assistance on finding and interpreting wills, as well as guidance on the distribution of assets and property.

To take advantage of our free probate advice service, simply enter your phone number below. Our team is available to assist you and answer any questions you may have. Don’t hesitate to reach out for help – we are here to support you every step of the way.