When you’re probating an estate, it’s necessary to work out which probate forms should be completed from an inheritance tax perspective. It’s essential on every grant of probate application to complete an inheritance tax form, irrespective of whether inheritance tax is payable.

Estates exempt from inheritance tax

To assist with the proper completion of the applications for a grant of probate or confirmation and the appropriate returns to HMRC (to calculate whether inheritance tax is due on an estate), the executors must first determine if the estate qualifies as an ‘exempt’ estate, or as an ‘exempt and excepted’ estate, or if neither category applies.

This will dictate how to complete certain parts of the applications for a grant of probate and which probate form is to be used to return the relevant inheritance tax information to HMRC.

For inheritance tax, the value of the estate for the grant of probate or confirmation is only one component of the gross estate and if the deceased made substantial gifts during their lifetime, or received income from a substantial trust, or where certain other circumstances apply, this can result in an inheritance tax liability even if the estate assets don’t exceed the inheritance tax threshold.

Where the deceased was domiciled in the UK at death, the estate is an ‘excepted’ estate or an ‘exempt and excepted’ estate where either:

  1. Excepted estate – the gross estate for inheritance tax doesn’t exceed the excepted estates limit (currently £325,000 and linked to the level of the inheritance tax threshold).OR
  2. Exempt and excepted estate – (a) the gross value of the estate is less than £1,000,000 and (b) because all or part of the estate passes to the deceased’s spouse who must also be domiciled in the UK, or to a charity or other body qualifying as exempt from inheritance tax, after deducting liabilities and those exemptions only, the estate is less than the excepted estates limit.

In addition, for both categories all of the following conditions apply:

  1. If there are any ‘specified transfers’ (see below), their total chargeable value doesn’t exceed £150,000.
  2. If the deceased had made a gift of land or buildings, it was made to an individual and not to trustees of a trust or to a company and it didn’t exceed £150,000 in chargeable value.
  3. If the estate for inheritance tax purposes includes assets held in a trust that are treated as part of the deceased’s estate, there is only one such trust and the total value of those assets doesn’t exceed £150,000.
  4. If the estate includes any foreign assets, the total gross value of these doesn’t exceed £100,000.
  5. The deceased didn’t give away any property whilst retaining the benefit of it.
  6. The deceased had elected that the income tax charge shouldn’t apply to: (a) assets they previously owned in which they retained a benefit or (b) the deceased’s contribution to the purchase price of the assets acquired by another person but in which the deceased retained a benefit.
  7. The deceased didn’t benefit from an alternatively secured pension fund.
  8. The deceased didn’t benefit under a registered pension scheme where (a) the benefit was unsecured and (b) they became entitled to the benefit as a relevant dependant of a person who died aged 75 or over.

To qualify as ‘specified transfers’, the assets given away can only be:

  • Cash
  • Quoted stocks and shares
  • Household and personal goods
  • Land and buildings

Any gift of land and buildings only qualifies as a specified transfer if it was an outright gift between individuals. If the gift of land and buildings was to a trust or a company, or the deceased kept back any kind of benefit from the property or was entitled to use it, it cannot qualify as a specified transfer.

If you’re not sure whether any transfers made by the deceased fall within these exceptions, you should contact the HMRC Helpline (tel: 0845 30 20 900) or seek professional advice.

Having determined if the estate qualifies as exempt or exempt and excepted, the executors are now in a position to complete the probate forms appropriately.

Get expert guidance on applying for probate, plus the probate forms you need, with Lawpack’s DIY Probate Kit.

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