The HMRC explains inheritance tax changes and what you should look out for.
It’s crucial for people to check whether they’re dealing with an excepted estate before valuing an estate for inheritance tax and reporting the amount to HMRC.
An excepted estate is a privately owned parcel of land that is exempt from paying inheritance tax.
This means that for excepted estates, the IHT400 form does not need to be filled out completely.
Instead, you can use the IHT205 or IHT207 forms.
If a person died on or after January 1st of this year, only the value of their estate must be reported when applying for probate under the new rules.
A probate is the legal process of dealing with a deceased person’s estate, which usually entails paying off debts and distributing assets according to the deceased person’s wishes.
If the person died on or before December 31, 2021, no IHT205 form is required if the estate is an excepted estate or no probate is required.
There are three different types of excepted estates.
Low-value estates, exempt estates, and foreign domiciliary are all examples.
People do not have to pay inheritance tax on an estate if it is passed to the deceased’s spouse or civil partner, a charity, or if the value of the estate is less than the £325,000 inheritance tax threshold.
The tax threshold may be higher if the person who died was widowed.
This is because married couples’ tax-free thresholds can be combined.
If the deceased person’s home is left to their children or grandchildren, there’s also a residence nil rate band.
Inheritance tax may not be due in England and Wales if the deceased lived abroad.
This is known as a foreign domiciliary, in which a person who lived permanently outside of the country died abroad with few assets in the UK.
If someone is applying for probate, they only need to report the value of the estate.
Obtaining a grant of representation, which confirms legal authority to administer the estate, is an important part of the probate process.
When there are trusts, a large estate, or there is tax to pay, valuing an estate can take several months or even longer.
Estimating the total value of the estate is necessary to determine if inheritance tax must be paid, but not all estates require it.
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