IHT400 must be completed where deceased made gifts out of income

15 February 2011

The excepted estates rules have been amended.

There are two changes to the rules, which set out the circumstances in which a personal representative need not submit a full inheritance tax return.

One amendment affects estates where the deceased had made potentially exempt transfers above the GBP3,000 annual threshold. Previously, if these transfers were “normal expenditure out of income” under section 21 of the Inheritance Tax Act 1984, and if the estate value was below the IHT threshold, the estate would be excepted and no IHT400 needed to be submitted.

That exemption has now been watered down. All such transfers may now classified as chargeable for the purposes of the excepted estate rules. Apparently HMRC feared the exception was being used to conceal lifetime transfers into trusts.

This amendment will take effect for deaths occurring on or after 1 March this year.

[Apologies to those who were misled by our over-compressed report in STEP UK Digest 14 Feb 2011. That report could have been read as suggesting that all transfers above the GBP3,000 annual threshold will in future be actually chargeable, which is not necessarily the case.]

The other amendment states that a full return will not usually be required where the estate passes tax-free because a full nil-rate band has been transferred between spouses. That change is effective for deaths on or after 6 April 2010.

• The present report is necessarily brief and HMRC has not issued any new forms or guidance relating to the amendments. Those needing complete details should check the relevant statutory instrument, 2011 No.214, called The Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) Regulations 2011.



UK Statutory Instrument 2011 (214)



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