Excepted Estate – Non-Inheritance taxable estates
An ‘excepted estate’ is one where there is no Inheritance Tax due. In practice this means the value of the estate is below current inheritance tax threshold because the individual or combined spouse/civil partner Inheritance Tax allowance(s), or charity exemption, bring the estate below the inheritance tax nil rate band. These estates must also be less than £1,000,000 in value.
There are 3 situations where an estate is regarded as an excepted estate.
1 The estate is of low value. Currently the Inheritance Tax allowance for an individual is £325,000. If value of the deceased’s estate is below this amount, then there is no inheritance tax liability and the estate is an excepted estate.
2 Combined inheritance tax allowances are available. If the deceased was married/civil partnership and their spouse passed previously, on the assumption that everything was left to the surviving spouse /partner, then it is possible to increase the Inheritance Tax threshold to £650.000. In this case any unused Inheritance Tax allowance for the first to pass can be transferred and used to mitigate any tax liability when the second person passes away. (Since October 2007, married couples and civil partners have been able to combine their individual tax-free thresholds.
3 There is also the potentially the ‘Residence Nil Rate Band’ which may be taken into account if an estate includes a property which is being left to the children or grandchildren. This potentially raise the tax allowances to £950,00 as at October 2019. In this case it will be necessary to use the IHT 400 set of forms.
An excepted estate may also arise where everything is being left to a charity or organisation that qualifies as being exempt from Inheritance tax.
Also, where the deceased person was domiciled outside of the UK, in other words they lived permanently abroad, and died abroad, and the value of their UK assets is under £150, 000
Where an estate is excepted the Revenue will usually accept an IHT 205 when applying for probate. However, this may not always be the case. It may be necessary on occasion to complete the IHT 400 set of forms (See above).