HMRC has warned agents to check the criteria for excepted estates are met and to submit an IHT400 if there is any doubt surrounding the valuation of assets and liabilities or the application of allowances.
Since changes to the excepted estate regulations in January 2022, more estates are able to apply for a confirmation or grant of representation as excepted, negating the need for a full Inheritance Tax account (IHT400).
But the estates risk out-of-time or incorrect tax calculations by failing to return an IHT400, HMRC warns, and will incur penalties if tax is subsequently found to be due.
There is a “large gap” between liability to tax and accountability, HRMC explained in a recent update.
“This gap is caused by the various nil rate band (NRB) tax allowances. Two are automatically due (NRB and Residence NRB) whereas the two transferable allowances must be claimed. We have noticed that some estates are choosing not to return an IHT400, although they are not excepted from doing so. They are relying on the tax allowances to remove any Inheritance Tax liability.”
An educational One to Many (OTM) letter has been issued to agents who have submitted excepted estate grants with values at or around the various the NRB thresholds (£325,000, £500,000, £650,000, £825,000 and £1 million), to help identify common errors and misunderstandings.
The guidance encourages agents to ensure estate valuations and allowance claims are accurate and well supported at the point of applying for probate.
Where there is any uncertainty about eligibility or values, HMRC suggests that submitting a full IHT400 may be the most appropriate route.
“This is a preventative and educational exercise, not a compliance investigation,” HMRC said. “By providing clear and practical guidance, the aim is to help agents and their clients get things right first time and reduce the need for downstream checks later.”
