IHT - Excepted estates |
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| This is one of a number of explanatory articles, part of a set copied under licence from H M Revenue & Customs website: |
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- Introduction – Is Inheritance Tax due?
- Calculating Inheritance Tax;
- Valuing assets;
- Responsibilities of personal representatives;
- Business relief and businesses;
- Discretionary trusts;
- Deceased left no will;
- Pensions;
- Agricultural relief;
- Deceased's liabilities;
- Foreign aspects;
- Joint property;
- Penalties;
- Settled property;
- Woodlands;
- Probate;
- Alter Inheritance tax;
- Gifts;
- Excepted estates;
- Paying IHT;
- Thresholds and Interest.
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| Introduction |
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| This guide is designed to help our customers to obtain a grant of representation, complete an account of the deceased's estate, and pay any inheritance tax (IHT) which may be due. |
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| It also gives advice about lifetime gifts and the taxation of discretionary trusts. |
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| The proposals in the Finance Bill 2006 affect the meaning in this article regarding: |
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- Gifts into certain kinds of trusts;
- The tax treatment of trusts, known as interest in possession trusts, in which the beneficiaries; have a right to benefits;
- The ending of an interest in possession during a beneficiary's lifetime;
- The treatment of funds in alternatively secured pensions on death.
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| This article will be updated as necessary when the Finance Bill is enacted. |
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| Is it an excepted estate? |
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| An excepted estate is an estate where no Inheritance Tax (IHT) is due and a full inheritance tax account is not required. From 6 April 2004 there are three types of excepted estate: |
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- Low value estates;
- Exempt estates;
- Foreign domiciliary.
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| For deaths before 6 April 2004, the leaflet IHT12 will advise you what to do (available from HM Revenue and Customs website). |
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| Low value estates |
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| These are estates where there can be no liability to inheritance tax (IHT) because the gross value of the estate does not exceed the IHT threshold. The conditions for these estates are that: |
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- The deceased died domiciled in the United Kingdom;
- The gross value of the estate does not exceed the inheritance tax threshold;
- If the estate includes any assets in trust, they are held in a single trust and the gross value does not exceed £100,000;
- If the estate includes foreign assets, their gross value does not exceed £75,000;
- If there are any specified transfers, their chargeable value does not exceed £100,000;
- The deceased had not made a gift with reservation of benefit.
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| Exempt Estates |
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| These are estates where there can be no liability to IHT because the gross value of the estate does not exceed £1,000,000 and there is no tax to pay because one or both of the following exemptions apply: |
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- Spouse or civil partner exemption;
- Charity exemption.
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| No other exemption or relief can be taken into account. Spouse or civil partner exemption can only be deducted if either spouses or civil partners have always been domiciled in the United Kingdom. And charity exemption can only be deducted if the gift is an absolute gift to the organisation concerned. |
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| The conditions for these estates are that |
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- The deceased died domiciled in the United Kingdom;
- The gross value of the estate, does not exceed £1,000,000, and;
- The net chargeable value of the estate after deduction of liabilities and spouse or civil partner exemption and/or charity exemption only does not exceed the IHT threshold;
- If the estate includes any assets in trust, they are held in a single trust and the gross value does not exceed £100,000 (unless the settled property passes to a spouse or civil partner or to a charity when the limit is waived);
- If the estate includes foreign assets, their gross value does not exceed £75,000;
- If there are any specified transfers, their chargeable value does not exceed £100,000, and;
- The deceased had not made a gift with reservation of benefit.
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| In Scotland, the spouse or civil partner exemption and/or charity exemption must be calculated on the basis that any entitlement to legitim against the estate will be claimed in full. In other words, only the minimum amount of spouse or civil partner exemption and/or charity exemption available after accounting for legitim can be deducted to establish whether the IHT threshold is exceeded. |
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| Foreign domiciliaries |
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| These are the estates where there can be no liability to IHT because the gross value of the estate in the United Kingdom (UK) does not exceed £100,000. The conditions for these estates are that: |
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- The deceased died domiciled outside the UK;
- The deceased was never domiciled in the UK or treated as domiciled in the UK for IHT purposes;
- The deceased’s UK estate consisted only of cash or quoted shares and securities passing under a Will or intestacy or by survivorship;
- The gross value of the estate did not exceed £100,000.
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