‘Tax Day’ inheritance tax changes

From 1 January 2022, inheritance tax reporting for estates will be simplified.  As a result, it is estimated that over 90% of non-taxpaying estates each year will no longer have to complete an inheritance tax return.

Currently where probate is needed to transfer the legal ownership of the deceased’s assets, all estates must complete either a short (8 page) or long (over 5mm thick!) inheritance tax form. Probate is not always required, where for example all assets are owned jointly and pass automatically to the surviving joint owner and/or where the estate does not consist of land, property, and shares and bank accounts contain less than £5,000 each. In practice though most banks have a more generous limit than £5,000.

Non-tax paying estates likely to escape the inheritance tax form from January next year include estates where all assets pass to a surviving spouse/civil partner or to charity, and estates where the net value of assets passing are below the nil rate band of £325,000.

Estates with a net value of £1 million or less passing to direct descendants i.e., children and grandchildren can also be non-tax paying. This is the case where two nil rate bands of £325,000 and two main residence nil rate bands of £175,000 are available. Currently the second “transferable” nil rate band and main residence nil rate band from the first spouse/civil partner’s death must be claimed on the second death so it does seem unlikely these estates will escape the long inheritance tax form.

HMRC will also continue to accept printed, as opposed to wet, signatures on inheritance tax forms submitted by a professional agent such as ourselves where we confirm all those named on the declaration page have seen the form and have agreed to be bound by the declaration.

The above proposals are welcome and will reduce complexity and form filling.

We also look forward to clarification on reporting “indirect” UK residential property interests owned by non-UK domiciled individuals; being owned through offshore trusts and/or companies and within the UK inheritance tax net since April 2017.