Succession: Changes to reporting for excepted estates

On 1 January 2022, the Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) Regulations 2021 came into force. These regulations amend the Inheritance Tax (Delivery of Accounts) (Excepted Estates) Regulations 2004, and it is to be regretted that HMRC has confirmed that they do not intend to consolidate the regulations.

The changes introduced by the 2021 Regulations will greatly reduce the inheritance tax reporting requirements for estates to something like they were before the introduction of the C1 and C5. It is thought that 90% of non-taxpaying estates will now involve no reporting whatever, whereas before, although only around 25,000 estates per year had inheritance tax liabilities, more than 10 times as many required to submit full returns. A happy result is that the lack of reporting should speed the administration of estates.

How will the changes affect executry practice?

Perhaps the most significant practical change is that for deaths on or after 1 January 2022 the C5 is no longer required. Instead, the updated C1 form, which is now the only form that will be required in most cases, simply asks the declarant to confirm that the estate is either excepted or exempt. The Scottish Courts & Tribunals Service has confirmed that it will reject applications made using the wrong version of the C1.

Along with the demise of the C5, the IHT217 makes a welcome departure though, again, only for deaths on or after 1 January 2022. Until now, where any nil rate band had been used on the first death, it was necessary to complete an IHT400 on the second death because the second estate would not qualify as an excepted estate. That is no longer necessary provided either that the estate is a low value excepted estate or an exempt excepted estate. To claim unused nil rate band, all the executor need now do is tick a box on the new C1. This change will be hugely helpful since the old procedure could mean an otherwise simple estate would take many months to complete.

Although there is much to be welcomed in the changes made, the new regime does still require one to know and understand what makes an estate an excepted estate. If nothing else, the structure of the C5 meant it was quite easy to determine what sort of estate you were dealing with. It was also easy to see whether anything about the estate would mean that it could not be treated as a low value excepted estate or an exempt excepted estate and consequently when an IHT400 would be required. Practitioners may well wish to create their own checklist and, it is suggested, the C5 might form the basis of that. The C5 cannot be used unadulterated, however, because the 2021 Regulations altered some of the figures as follows:

• The figure for an exempt excepted estate is increased from £1,000,000 to £3,000,000.
• The figure for specified transfers is increased from £150,000 to £250,000.
• The figure for a qualifying interest in possession is increased from £150,000 to £250,000.

It remains the case that when working out whether an estate is excepted, any available reductions for agricultural property relief or business property relief should not be included in the calculation of the gross value of the estate.

A consequence of the reduction in reporting could be that when dealing with a second death it will sometimes be more difficult to establish what happened on the first death, and it may be thought useful to retain the checklist with the executry papers.

Compliance checks

HMRC says it will monitor the effects of the reduced reporting requirements through compliance checks, and it will be interesting to see how many estates are so affected. If the executors do not hear from HMRC within 60 days from the date of the grant of confirmation, they can assume that they are discharged save in cases where there is incorrect or incomplete information in the return, additional estate comes to light that means the estate no longer qualifies as an excepted estate, or where HMRC has made a request for further information within the 60-day period.