What is an excepted estate?

What is an excepted estate? Katie Deakin of Wright Hassall explains what an excepted estate in inheritance tax is, how you register one, and whether you still need a grant of probate.

A gold coin being put into a house

What is an excepted estate in inheritance tax?

In some circumstances, the personal representatives (the person(s) responsible for managing the deceased’s estate) are not required to submit a full inheritance tax account to HMRC. This is referred to as an ‘excepted estate’ for inheritance tax purposes.

There are broadly three types of excepted estate:

  1. Low value – the aggregate of the gross value of the estate and certain lifetime transfers does not exceed the nil rate band.
  2. Exempt – the aggregate of the gross value and certain lifetime chargeable transfers does not exceed the threshold set out below and passes to spouse, civil partner or charity.
  3. Non domiciled or deemed domiciled in the UK and after consideration of the type of assets has a gross value no more than £150,000 or those not deemed domiciled or domiciled outside of the UK.

To determine whether an estate qualifies as an excepted estate, you must first identify when the person died and then apply the following:

The person died on or after 1st January 2022 and the estate:

  • is valued below the inheritance tax threshold;
  • is worth £650,000 or less and any unused threshold is being transferred from a spouse or civil partner who died first;
  • is worth less than £3 million and the deceased left everything to a spouse or civil partner living in the UK or to a qualifying charity; or
  • the deceased was living permanently outside the UK when they died, and the value of their relevant UK assets is under £150,000.

The person died after 1st September 2006 and on or before 31st December 2021 and the estate:

  • is valued, including non-exempt lifetime transfers below the inheritance tax threshold at the time they died;
  • is worth less than £1 million and the deceased left everything to a surviving spouse or civil partner living in the UK or to a qualifying charity; or
  • the deceased was living permanently outside the UK when they died, and the value of their UK assets is under £150,000.

Do you still need probate for an excepted estate?

Regardless of whether the estate is excepted, you must then consider whether you need to apply for a grant of representation.

A grant of representation may not be required if the deceased only had limited savings or if their assets were held jointly and passed automatically to the surviving joint owner. If the estate is more complex and the deceased held sole assets, a grant may be required. 

The requirement to obtain will relate to the individual rules of the financial institutions, however it is generally considered good practice to obtain a grant of representation, unless circumstances clearly dictate it is not necessary. 

In favour of obtaining a grant of representation, the grant offers the formal authority to deal with the estate, any will/intestacy becomes public knowledge to allow any potential claimants the opportunity to consider any action they may take, and other assets may be located in the future that do require a grant.

How do you register an excepted estate?

The value of the estate may need to be reported to HMRC, as part of the application for a grant of representation and the method for doing this depends on when the person died: 

  • For a person who died after 1st September 2006 and on or before 31 December 2021, the estate value should be reported on form IHT205.
  • For a person who died on or after 1 January 2022, you do not need to send full details of the estate; it is sufficient to provide an estimated estate value as part of your probate application.

The rules for excepted estates and inheritance tax can be complex and so it is important to be certain about the nature of any estate you are dealing with.

About the author

Katie Deakin is a Solicitor at Wright Hassall. She manages a varied caseload of private client work including Wills, Lasting Powers of Attorney, Trusts and Estate Administration.

See also

The duties of an executor: what to do when someone dies

How do nil rate bands reduce inheritance tax?

What is a grant of representation and do I need it?

Find out more

Report an excepted estate for Inheritance Tax (GOV.UK)

Images

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Publication date: 15 February 2023

Any opinion expressed in this article is that of the author and the author alone, and does not necessarily represent that of The Gazette.