What is an excepted estate?
Majority of estates are excepted estates, meaning there is no Inheritance Tax (IHT) liability because there are insufficient assets chargeable to IHT. However, there are other conditions that the estate must also meet. Where the death is after 1st of September 2006, the estate may be an excepted estate if it is one of the following:
Low Value Estate
An estate is classified as low value if the gross value of the estate is below the IHT threshold(nil rate band), or less than twice the IHT threshold: and 100% of the unused IHT threshold from a late spouse or civil partner can be transferred.
The gross value estate is the total of all the assets that make up the estate of the deceased before any of their debts are taken off, plus the chargeable value of any lifetime gifts made by the deceased in the seven years before the death. Unless covered by an exemption potentially exempt transfers(PETS) made within 7 years of death will become chargeable to IHT.
The estate is exempt if the net estate after deducting exempt transfers to the surviving spouse or civil partner of the deceased and/or the qualifying charity or other qualifying body is below the excepted estate limit or is below the excepted estate limit where claiming the transfer of the whole of the nil rate band from the estate of a spouse or civil partner who passed away before the deceased (and the gross estate is valued at under £1 million).
An estate can be treated under this category if the gross value of the deceased’s estate does not exceed £150, 000 and the deceased was:
Domiciled outside the UK at the date of their death
Had never been domiciled in the UK during their lifetime
Had never been deemed domiciled in the UK; and
the value of their estate situated in the UK consists only of cash, quoted shares or securities passing under their will or intestacy or by survivorship.
There are a number of conditions that disqualify the estate from being an excepted estate. The estate will not qualify if any of the following is true about the deceased:
they had assets in a trust valued at more than £150,000 (unless the settled property passes to their spouse or civil partner or a charity, when the limit is waived) or held more than one trust,
they had assets worth more than £100,000 outside the UK,
they made ‘specified transfers’ within seven years before their death and the chargeable value of the gifts (after exemptions) was more than £150,000,
Specified transfers are lifetime transfers to individuals (not gifts into trust) where the value transferred is attributable wholly to cash, quoted shares or securities, land (and contents to be enjoyed with the land) and household and personal goods. Only certain lifetime exemptions can be deducted in valuing specified transfers. In particular, Business Property Relief (BPR) and Agricultural Property Relief (APR) must not be taken into account.
they made chargeable transfers within seven years of death other than specified transfers.
they elected that property that they had given away should be part of their estate for IHT, rather than pay a ‘pre-owned asset’ charge,
they were regarded as ‘deemed domicile’ in the UK – see Chapter 6.2.1 above for deaths on or after 1 September 2006 where a charge arises under IHTA1984 S. 151A-C (IHT charge on an alternatively secured pension fund),
where, on or after 18 March 1986, the deceased made a gift with reservation of benefit and either:
o the reservation still subsists at the death, or
o the property ceased to be subject to the reservation within the seven years before their death – (unless this constituted a specified transfer)
However, in practice, the latest HMRC guidance should be referred to in determining whether or not a particular estate is excepted.
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