Excepted Estate?

Trusts Discussion
1

I know this question has been raised before in respect of spouses but we have an estate where the will leaves the NRB amount to nieces and nephews (not married so no need to worry about any transferable allowances and no gifts) and residue to charity. Estate is approx £1.5m but as the estate is less than £3m and the chargeable figure cannot be above £325k I believe it is an excepted estate but another adviser is suggesting otherwise.

Any views always welcome

2

Looks to me that SI 2004/2543 Reg 4(3) is satisfied.

Malcolm Finney

3

If death after 1 Jan 2022 then as not all left to spouse and/or charity, not excepted estate

Gov website states

What counts as an excepted estate

An estate is usually an excepted estate if any of the following apply:

  • its value is below the current Inheritance Tax threshold
  • the estate is worth £650,000 or less and any unused threshold is being transferred from a spouse or civil partner who died first
  • the deceased left everything to a spouse or civil partner living in the UK or to a qualifying charity and the estate is worth less than £3 million (search the charity register for registered UK charities)
  • the deceased was living permanently outside the UK (a ‘foreign domiciliary’) when they died and the value of their UK assets is under £150,000
4

I agree with Malcolm.

I am unable to trace the exact source which you quote but I have traced the very same statement to the Official Gazette of 15 Feb 2023. “the deceased left everything to a spouse or civil partner living in the UK or to a qualifying charity and the estate is worth less than £3 million” is just simply wrong. So is “Exempt – the aggregate of the gross value and certain lifetime chargeable transfers does not exceed the threshold set out below and passes to spouse, civil partner or charity.”

These each frame the spousal or charity transfer as a condition; it is nothing of the sort. The short answer is that the key rule is that “the net qualifying value of the estate” must not exceed the IHT threshold", currently £325k. Reg 4(3)(f) of the 2004 Regs as amended by the 2021 Regs.

The components of this are the gross value of the estate minus deductible liabilities (IF ANY) AND minus spousal/charity transfers, IF ANY. To whom the net estate is left is completely irrelevant if it is £325k or less. The gross value must not exceed £3m either, whomever it is left to including spouse or charity. So your estate is excepted, since you do not say that there is any issue about domicile or the composition of the estate and you confirm no gifts.

1 I sympathise but there is no substitute for reading the legislation. This is not easy, unless you have a book or online service at great expense. There is no current revised version of the Regs on legislation.gov.uk (?WFH) which makes analysis tortuous after many amending Regs, summarised at IHTM06001. Legislation on the government site like all statutes or subordinate legislation should be accessible to all in substance and not only in a form which requires editing by a specialist to ensure it is done correctly.

2 The guidance at IHTM06000 onwards is sound. Also useful are the documents on reduced reporting at
https://www.gov.uk/government/publications/inheritance-tax-reduced-reporting-requirements

I am going to complain to the Gazette and encourage you to complain to gov.uk.

Jack Harper

5

Sorry can’t agree with you Jack

Quick search for gov excepted estate will get you there

6

Can you say why Malcolm’s and my reading of the statutory instrument is wrong? I can’t speak for Malcolm but I take most guidance with a pinch of salt. However HMRC in IHTM seem to agree with both of us. Where do you think HMRC are wrong?

Jack Harper

7

I searched as you suggest. It says:
"The estate will not have to pay tax as long as one of the following applies:

  • it all passes to the spouse or civil partner of the person who died
  • it all passes to a charity or a community amateur sports club
  • it has a value below the Inheritance Tax threshold of £325,000"
    Your estate is in the third bullet. In simple trms there “value” means per the Regs ““net qualifying value of the estatw”, a carefully defined term using a formula. It does not have to be in the first or second bullet. The £325k can be left to Uncle Tom Cobleigh and all”. It might have been more helpful if the word “or” had been inserted after the text in bullets 1 and 2 rather than just “one of the following”. I agree with your first post and the “other adviser” is wrong. Not clear why you disagree with me.

Jack Harper

8

I completely agree with Jack’s comments; in particular, that there is no substitute for reading the relevant legislation (in the first instance) when wanting to identify what the law is on any particular issue. As Jack points out, the quote from the Official Gazette is misleading or, as Jack puts it, “is just completely wrong”.

Articles are often written to help the reader understand a particular topic but inevitably they typically only offer an overall view and are invariably unable to cover every point detailed in the legislation; accepting at face value what is said in an article without checking the legislation is fool-hardy and dangerous. However, overall views and generalised statements made in articles are not, per se, a problem but they still need to be accurate.

The Law Society article referred to by Jack in part states:

" The person died on or after 1st January 2022 and the estate:

  • is valued below the inheritance tax threshold;
  • is worth £650,000 or less and any unused threshold is being transferred from a spouse or civil partner who died first;
  • is worth less than £3 million and the deceased left everything to a spouse or civil partner living in the UK or to a qualifying charity; or
  • the deceased was living permanently outside the UK when they died, and the value of their relevant UK assets is under £150,000".

The current legislation (ie the SI) does not say as the article states “* is worth less than £3 million and the deceased left everything to a spouse or civil partner living in the UK or to a qualifying charity”.
In this regard, it is stated that “the gross value of the estate for IHTA did not exceed £3,000,000” [Reg 4(3)(e)]. Pre the amendments of SI 2021/1167 it was stated that “the total transferred on that person’s estate by a spouse,… or charity is greater than nil” (somewhat ironically there is a typo in the Tolley’s Handbook where the word “by” should be “to”).

I have to say that trying to identify the current position re Excepted Estates given the amendments made over the years is in my opinion no easy feat as often published legislation which is freely available reveals the legislation as it was when introduced and not as subsequently amended. Only by having access to tax subscription services solves this problem. A perhaps useful source is Tolleys Tax Handbooks but care is still needed to identify any amendments which may have been between each annual publication ( as happened re the recent amendments to SI 2004/2543 made by SI 2021/1167 published in October 2021).

Apologies for the length of my post (I fear I may have contracted what in the professions is known as
“Harper’s prolixity” and I await to hear what bits of my post I may have got wrong.

Malcolm Finney
PS will pots this despite having just noticed there have been subsequent posts.

9

Excellent post Malcolm. I had real difficulty getting to the post-January 2022 text. I had to create a word document of my own.

Jack Harper

PhD (Prolixity)

10

May I suggest, RIH, you read SI 2004/2543 as subsequently amended if you haven’t already done so to see if you have a change of mind.

Malcolm Finney

11

Effectively Jack that’s what I did sometime ago; cut and pasted to try and see a finished document to look at.

Malcolm Finney

12

I am not too critical of legislation.gov.uk. In answering a recent query I was sidelined by the fact that ICTA 1988 was only available in its original version and as totally revised. There was a missing link in some intermediate revision. It’s a reasonably good service overall.

Jack Harper

13

Thanks for all your replies

14

All agreed. Oversight on my part. Thanks