An ‘excepted estate’ is an estate where a full IHT account is not required to be submitted. There are two changes to the excepted estate rules, which have an impact upon when a personal representative needs to submit a full IHT return.
The first amendment is effective for all deaths on or after 1 March 2011 and is relevant to estates where the deceased had made potentially exempt transfers above annual allowance for IHT of £3,000. The position has been that if any transfer above this amount fell within the ‘normal expenditure out of income’ exemption then IHT400 did not need to be completed in respect of this.
However, HMRC’s concern is that this exemption is being used as a form of IHT avoidance. Therefore, transfers such as these will now be regarded as chargeable for the excepted estate rules. This means that an IHT400 account will need to be submitted if transfers over the £3,000 annual allowance have been made and the normal expenditure out of income exemption has been used.
For deaths on or after 6 April 2010 a full IHT account is now not required where the estate passes tax-free because a full nil-rate band has been transferred between spouses.
The relevant forms have not yet been published. The statutory instrument is The Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) Regulations 2011.
The information provided in this article is not intended to offer advice. It is based on Skandia's interpretation of the relevant law and is correct at the time of publication. While we believe this interpretation to be correct, we cannot guarantee it. Skandia cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.