IHT400 may be dropped for estates that use transferable NRB

16 September 2010

Personal representatives may soon be excused from submitting an IHT400 where the estate’s assets pass IHT-free under the transferable nil rate band rule.

Section 256 of IHTA 1984 allows HM Revenue & Customs to exempt certain estates from submitting full IHT accounts. At the moment, the exception applies only where the gross taxable value (after deducting the spousal exemption or charity exemptions) is less than the IHT threshold. [see FOOTNOTE 1]

HMRC now proposes to extend this to some cases where the first spouse to die transfers the unused proportion of their IHT nil-rate band to their partners. This rule was introduced in late 2007 and is currently being used in 27,000 full estate returns each year.

Not all such estates will be excepted from submitting accounts, though. HMRC wants to restrict it to cases where the full nil-rate band is transferred from the first death; and then only where there was a single pre-deceased spouse.

HMRC estimates this will apply in three out of every four cases where transferable NRB is invoked. In all other more complex cases a full estate return will still have to be completed.

Two other changes are being proposed. One removes an error in the regulations that allowed an estate to be excepted where the transferred unused NRB amount was zero.

Another states that transfers of more than GBP3,000 that are tax-free because of the normal “out of income exemption” will in future be included in the calculation of a chargeable transfer, if made within seven years of the person’s death.

HMRC is conducting a limited consultation on the proposed changes in all four UK jurisdictions. The Estates and Trusts Committee will be responding to the consultation on behalf of STEP.

[FOOTNOTE 1: There is a further exception, irrelevant here, for foreign domiciliary estates where the gross value of the UK estate is below the threshold.]


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