Declaring the value of an estate for inheritance tax

Acting as executor means you are responsible for declaring the value of the estate and declaring any inheritance tax due, so it’s important to make sure you follow the correct procedures.

Since January 2022, new rules apply to the declaration of inheritance tax. Although these rules are intended to facilitate the probate process, you could easily be caught off guard if you are unfamiliar with their full scope.

When the value of the estate has yet to be declared

Under the previous rules, in order to obtain probate, it was necessary to declare the value of all estates to HMRC using either a short form or a long declaration form. Whilst this was the case even where no inheritance tax was payable, the new rules mean that where there is no inheritance tax payable the declaration to HMRC may no longer be a obligation. However, if you are the executor of an estate on which inheritance tax is due, you must still declare this to HMRC using the detailed declaration form.

You should also be careful if you are the executor of an estate that is not subject to inheritance tax, as it is not true that all non-taxable estates should not be declared.

The new rules only apply to deaths that occur on or after January 1, 2022. If the person whose estate you are dealing with died before that, you will still need to submit an account to HMRC even if no inheritance tax is due. from.

For deaths on or since the introduction of the new rules, you may still need to report to HMRC if the deceased made any donations during their lifetime. If they have made donations in the seven years before their death worth more than £250,000, or any donations from which they have continued to personally benefit during this period, you will need to send details of the valuation of the succession.

Certain strengths may also mean that reporting is still necessary. If the deceased had foreign assets worth more than £100,000, or left a life insurance policy to be paid to someone who was not their spouse or civil partner, you will need to report to HMRC. Trusts can also mean that you are required to report. Where the deceased benefited from a trust worth more than £250,000, or held more than one trust, you may need to submit a declaration.

Another consideration is where the deceased was living when they died. Different, more complex rules apply to persons domiciled or deemed to be domiciled abroad. These terms have very specific legal meanings, and you should seek advice if the domicile of the deceased is in any doubt.

Another factor is the overall value of the estate. Where it exceeds £3 million, HMRC requires valuation details even if no inheritance tax is payable, for example where the entire estate is passed on to charity.

It can be difficult to determine when a report is necessary, but if you are an executor it is your responsibility to ensure that you comply with HMRC requirements. If you are in any doubt, you should seek professional advice.

When the value of the estate does not have to be declared

If Inheritance Tax does not apply to the estate, and provided you are satisfied that none of the reporting requirements exist, you can now obtain probate without reporting the estate valuation to HMRC .

In such cases, you should always obtain accurate and up-to-date appraisals for all assets in the estate, as the Probate Registry will require these details.

Reporting estate valuations to HMRC for inheritance tax purposes was and remains only a small part of the overall probate process. As an executor, your duties are to the beneficiaries and are governed by the pre-existing laws on the administration of estates and estates. If you fail in your duties, you may find yourself personally liable for any resulting loss. If you have any doubts about the probate process, it is wise to speak to a lawyer. Being an executor is a big responsibility and should be approached with care and diligence. Always seek advice if you are at all unsure of the process.

How can we help?

If you are an executor and are struggling to get to grips with HMRC’s new reporting rules, our lawyers can guide you through the process and can explain your duties to help you clarify them.

For more information please contact Hannah Sawyer, Partner, on 01227 763939 or email [email protected]

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