The changes to IHT excepted estates rules are vastly approaching and will see the simplification of the administrative burden placed on most estates going through probate or confirmation.
Below, we detail 5 key things you need to know about the changes and explain what they are, what they mean for those administering an estate and how Exizent can help legal service firms continue to show value to clients amidst the changes.
Why are the changes happening?
In November 2018, the Office of Tax Simplification published a report with a series of recommendations to the Treasury for the simplification of Inheritance Tax. One of the key recommendations, prior to a more comprehensive digitisation of the process, was to reduce and simplify the administrative burden on estates. The Treasury accepted this recommendation and pledged to remove the need to report probate to HMRC for over 90% of estates that do not have an IHT liability. Today, even though just 5-6% of estates have an inheritance tax liability (after all exemptions are considered) close to half of all estates are required to complete forms related to IHT.
What is changing?
From the 1st January 2022, there are three key changes being implemented:
- For low value and exempt excepted estates, the information necessary to receive a grant of probate or certificate of confirmation is simplified and the need to complete an IHT account removed. The relevant monetary limits will increase as follows:
– the limit for the aggregate of chargeable transfers and exempt ‘normal out of income’ transfers made prior to death, is increased from £150,000 to £250,000
– the limit for chargeable trust property is increased from £150,000 to £250,000
- For exempt estates, the value limit in relation to the gross value of the estate is increased from £1 million to £3 million, with the total amount of trust property including exempt amounts limited to £1 million.
- The time requirements on the Court services to transmit prescribed information to HMRC is being extended to one month; and the time when a person providing the specified information is discharged from tax is being aligned at 60 days for all nations (was previously 35 days in England, Wales and Northern Ireland).
What does it mean?
For deaths occurring after the 1st January 2022 you will no longer be required to complete an IHT205 or C5 (Scotland) for excepted estates in the UK, an updated PA1 or C1 form will be the only form required to receive a grant of probate or certificate of confirmation. These new forms will be published by HRMC/HMCTS before the end of 2021 and will be available on the Exizent platform. For deaths occurring prior to the 1st of January 2022 the existing combination of PA1/C1 and IHT205/C5 will still be needed. This means that throughout 2022 the use of the IHT205 and C5 in cases will reduce, with the forms being phased out completely at the end of 2022 (allowing for the 12-month window from the date of death for executors to submit all relevant forms).
HMCTS has indicated that updates will be made to MyHMCTS between 1-12 January 2022 to reflect the changes. It is therefore possible that you will not be able to submit applications for people who die between this period, during this time. You should however, be able to submit applications for deaths that occur before 1 January 2022.
The changes in gross value of the estate means that more estates will likely be classified as exempt and will therefore fall within the simplified reporting process.
In England, Wales and Northern Ireland the timelines for HMRC to get in touch and ask for more information on excepted estates is being extended from 35 to 60 days. Firms will need to factor these extended timelines into the timescales they give to their clients.
Although there will be no requirement to complete IHT forms in a higher percentage of cases after the death of the first spouse, it is still recommended to keep good records of the estate to help when dealing with the death of the second spouse.
The implications on fees and business
With the removal of the IHT205/C5 obligation the administrative load in the majority of probate cases is reduced and the time taken to receive the grant of probate should, by default, shorten. Therefore, we are likely to see time spent by practitioners on a case reduce, lowering the overall cost to the client. Whilst this is a good outcome for clients, it means that more people may consider managing the estate administration process themselves, and fee levels for cases handled by practitioners overall may fall. As such, finding ways to demonstrate the value of providing help for the bereaved by managing other aspects of an estate such as asset discovery, encashing and distribution of assets to beneficiaries and the production of estate accounts will be important.
How can Exizent help?
In advance of these changes, we are working on implementing the updated PA1 and C1 forms on the platform, which, as they currently do, will automatically populate using your case data, significantly reducing rekeying and the potential for errors being made. From complex financial calculations to reformatting data, our platform greatly reduces the time taken to complete your forms, benefiting your clients.
Our software, allows you to build a complete view of an estate easily, including asset values and IHT thresholds, to manage all of your cases in one place. We can also help reduce the time taken to administer an estate with our integrated Estate discovery feature. Show value to your clients by quickly locating unknown assets and financial liabilities associated with an estate and confirm and validate known assets more reliably via integrated Experian data.
If you would like to learn more about Exizent’s innovative platform and how it can benefit the bereavement process, get in touch today
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