TBI: Reporting an estate’s value for inheritance tax
Acting as an executor means that you are responsible for reporting the value of the estate and declaring any inheritance tax due, so it is important to make sure you follow correct procedures.
‘Since January 2022, new rules apply in respect of reporting inheritance tax’, says Helen Dexter, a Partner in the wills and probate team with Tilly Bailey and Irvine. ‘Whilst it is intended that these rules should make the probate process smoother, you could easily be caught out if you are not familiar with their full scope.’
When the estate value still needs to be reported
Under previous rules, in order to obtain probate, it was necessary to report the value of all estates to HMRC using either a short form or long form return. Whilst this used to be the case even when no inheritance tax was due, the new rules mean that when there is no inheritance tax to pay reporting to HMRC may no longer be a requirement. However, if you are an executor of an estate on which inheritance tax falls due you must still report to HMRC using the long form return.
You also need to be careful if you are an executor of an estate which is not subject to inheritance tax, as it is not the case that all non-taxable estates need not be reported.
The new rules apply only to deaths which occurred from 1 January 2022 onwards. If the person whose estate you are dealing with died prior to this, you will still need to submit an account to HMRC even if no inheritance tax is due.
For deaths on or since the introduction of the new rules, you may still need to report to HMRC if the deceased made gifts during their lifetime. If they made gifts within the seven years prior to their death which exceed £250,000 in value, or any gifts from which they continued to benefit personally during this time, you will need to send valuation details for the estate.
Certain assets may also mean that reporting remains necessary. If the deceased held foreign assets worth more than £100,000, or if they left a life insurance policy to be paid out to someone who was not their spouse or civil partner, you will need to report to HMRC. Trusts may also mean that you are required to report. Where the deceased benefited from a trust which has a value greater than £250,000, or if they held more than one trust, you may need to submit a return.
Another consideration is where the deceased lived when they passed away. Different, more complex, rules apply in relation to foreign domiciled or deemed domiciled persons. These terms have very specific legal meanings, and you should seek advice if the domicile of the deceased is in any doubt whatsoever.
One further factor is the overall value of the estate. Where it exceeds £3 million HMRC require valuation details even if no inheritance tax falls due, such as where the entire estate passes to charity.
It can be difficult to determine when reporting is needed, but if you are an executor, it is your responsibility to ensure that you are compliant with HMRC’s requirements. If you are in any doubt, you should seek professional advice.
When the estate value need not be reported
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 must still obtain accurate up-to-date valuations for all of the estate assets, as the Probate Registry will require these details.
It is important to note however, that even although an estate may be free from Inheritance Tax reporting there are other taxes which can fall due in the estate administration process, most commonly Income Tax and Capital Gains Tax. As such it is always advisable to seek advice from a suitably qualified solicitor.
Reporting the estate valuations to HMRC for the purpose of inheritance tax 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 pre-existing inheritance and estate administration laws. If you fall foul of your duties, you can find yourself personally liable for any loss arising. If you are in any doubt about the probate process, it is wise to speak to a solicitor. Being an executor is a big responsibility and should be tackled with care and diligence. Always seek advice if you are at all unsure about the process.
How can we help?
If you are an executor and you are struggling to get to grips with the new HMRC reporting rules, our solicitors can help to guide you through the process and can explain your duties to help make these clear.
For further information, please contact Helen Dexter in the wills and probate team on 0333 444 4422. Tilly Bailey and Irvine has offices in Hartlepool, Wynyard, Stockton-on-Tees and Barnard Castle.