The burden of inheritance tax calculations

HM Revenue & Customs (HMRC) provides an online form (IHT 250) for someone’s executors to use to report the value of estates below the £325,000 tax threshold. This is called the nil-rate band. 

 

But the longer paper-based 'IHT 400' document for estates that could be liable for an inheritance tax charge of up to 40% is much nore complicated. 

 

A Freedom of Information request revealed that many executors complete all 121 sections of the IHT 400 paperwork and provide the accompanying documents even though exemptions can bring an estate below the IHT threshold. 

 

The most recently available information (for the tax year that ended on 5th April 2017) showed that, of the 49,500 IHT 400 forms completed, in 43% of the cases no IHT was due. 

 

The more straightfoward IHT 205 form can be used for 'excepted estates' where the loved one’s assets and possessions were below the £325,000 IHT threshold, were passed to a spouse or were left to charity. 

 

Other exemptions can reduce the value of an estate. Husbands, wives and civil partners can leave assets to each other tax-free on death. When the surviving partner dies, unused allowances below a married couple's combined nil rate band, currently £650,000, can be passed on without any IHT. 

 

There is also the residence nil rate band, introduced in April 2017, which takes a portion of the value of a person's main residence out of their estate for inheritance tax purposes. From April this year it will be worth £175,000. 

 

However, these exemptions can’t be claimed online. 

 

You might also want to consider: 

 

Some gifts and property are exempt from IHT, including some wedding gifts and charitable donations. Relief might also be available on certain types of property such as farms and business assets. 

 

If someone gives a gift during the seven years before they die, it will still be counted as part of the estate, and is likely to be subject to IHT. How much tax is due will depend on the value of the gift, when it was given and to whom. 

 

As long ago as November 2018, the Office of Tax Simplification said HMRC should digitise inheritance tax reporting and provide more guidance. Very little has changed so far and the guide to IHT is currently over 1,100 pages long. 

 

If you would like to discuss provisions you can include in your Will to help reduce the amount of inheritance tax due on your estate, please get in touch.