Excepted Estate - IHT 403 still required?

cheekymonkeytoo

I believe I am correct in that for an excepted estate, IHT 205 form (online or otherwise) is no longer required - but instead the Probate Application Online form includes most of the summary information that IHT 205 generated.  Im updating all my prep for Executors for when pop off eventually.

I assume in respect to gifts the probate form requires the same as would have been in IHT 205 box 9.1, being (if correct) the sum of all gifts provided in last 7 yrs  (incl gifts from income +  from savings in excess of £3k allowance subject to 7yr rule).  Assume £3k allowance also used, and £150k limit not exceeded.

I know for the excepted estate there is no IHT to pay - but am curious how HMRC know how much of my gifts would reduce the £325,000 of IHT allowance passed to my wife (ie the gifts subject to the 7 year rule).

Would my executors still need to complete IHT 403 - Im guessing so.  I cant find where says so (yet) so thought would ask the question.

Keep_pedalling

IHT205 is obsolete and no longer required. IHT403 is only required if you have to do a full IHT return so won’t be required for an excepted estate. 

On the probate forms you have to declare both value for probate and value for IHT, any  failed PETs need to be added to the value for IHT. Gifts from excess income do not have to be declared, but you still need to keep records of these incase of a challenge.

cheekymonkeytoo

Thanks Keep-pedalling, I knew from past posts a while ago you would be first to reply.

I had looked at the Guide to completing your Inheritance Tax account effective from 1 Jan 2022, for an excepted estate - it referenced not using IHT400 etc and instead add information in PA1P instead

https://assets.publishing.service.gov.uk/media/66f6bb42e84ae1fd8592eab5/IHT4002022_Notes.pdf

The conditions on page 3 state 

• penultimate bullet point says - 'gifts out of income of more than £3k in any year must be be shown in full' .... ie in the probate form PA1P.
• bullet before this refers to the condition that in effect for an exempt estate if there are any specific transfers then these will not have exceeded £250k

I also used the IHT checker, to see if need to pay IHT, and the online form merely mentions to include gifts in excess of the £3k allowance.  It makes no mention of gifts from income - which is good.

Its very odd the guidline refers to gifts from income being included for probate - when I expected it to refer to non exempt gifts above £3k allowance (ie not from income). 

I do wonder whether the reference to £250k is aimed at all gifts including from income...

Regards

PS - Aside of my query, I have taken a tax free lump from my pension.  Im looking on here to see if anyone asked if that can be treated as normal income (ie for gifting purposes).  Presume best I ask that question separately unless you have a view.

Keep_pedalling

Interesting, I have not come across this before but it looks like if your gifting from excess income was in excess of £3k per year it you can’t claim an excepted estate which means a full IHT return will have to be completed. 

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm06018

cheekymonkeytoo

Thanks for the reply and the link to the HMRC manual.  This linked also to IHTM6027 which had examples.

To be honest Ive gone round in circles now.  On the one hand I read IHT400 guidelines (section - when may not need to use the form) I form the view my estate would still be exempt (having spouse exemption, estate is way below £1m, and gifts including from income (incl those over £3k in a year etc).  On other hand what you and I read on the IHT manual - which suggests the gifts over £3k make it not exempt. 

I think need to talk to IHT helpline and get confirmation - assuming not told cant help unless Im dead (as otherwise I may be trying to avoid tax).  It worked for me when I got info on what normal expenditure was for gifts from income a long time ago - so can only try.  Be good to be able for others to know too.

Regards

cheekymonkeytoo

HMRC IHT team were no help at all. I said I merely wanted confirmation whether my understanding was correct - and lady said not permitted to do that.  She said only place to get that was with a legal firm.  Would only help if I was dead or an executor - wish I had said that now.  I will find the answer somehow.

Keep_pedalling

cheekymonkeytoo said:

Thanks for the reply and the link to the HMRC manual.  This linked also to IHTM6027 which had examples.

To be honest Ive gone round in circles now.  On the one hand I read IHT400 guidelines (section - when may not need to use the form) I form the view my estate would still be exempt (having spouse exemption, estate is way below £1m, and gifts including from income (incl those over £3k in a year etc).  On other hand what you and I read on the IHT manual - which suggests the gifts over £3k make it not exempt. 

I think need to talk to IHT helpline and get confirmation - assuming not told cant help unless Im dead (as otherwise I may be trying to avoid tax).  It worked for me when I got info on what normal expenditure was for gifts from income a long time ago - so can only try.  Be good to be able for others to know too.

Regards

If you joint estate are well below IHT territory you really don’t need to complicate things with gifts from excess income. If between you are gifting over £6,000. Then just record them as joint PETs. All that will happen if one of you meets an untimely early demise is that the transferable NRB will reduce a bit.

cheekymonkeytoo

Note what you say thanks.  If can keep the gifts from income it helps my position a lot, given my cirumstances, and also knowing when pension pots are included in the estate (assuming it happens) every bit of NRB will help.  No just popping off yet, and will review the gifting as you suggest.  Will follow up the IHT400  and excepted estate with someone legal and let you know result when done so.  Thanks as always for your input much appreciated.

cheekymonkey2

 Keep_pedalling It took me a while of digging to clarify my excepted estate and IHT400 concerns. To recap HMRC terminology inferred (to me) that an exempted estate status may be possibly compromised by gifts from income (GFI) exceeding the £3k per tax year exempt limit.   All seemed extreme.

In my case my estate is 100% to the wife and spouse exemption applies, and gross estate is <£3m.   Its lower without a spouse exemption.  I also use my £3k gift from savings allowance (have a couple of PET where I exceeded this).  I give regular gifts from income always more than the £3k exemption (a separate exemption).

Note - If in any tax year I give a gift from income of eg £13k then, the entire £13k is deemed to be a chargeabe transfer (CT) and the £3k allowance is ignored.  If I died the total of all CTs for the last 7 years will be aggregated.  PETs same (gross values too I believe).

Tests - Both need to pass for excepted estate status not to be compromise (and avoid IHT400 detail).

a) The aggregate of the last 7 years gross CTs (gross amounts) plus the gross PETs are then compared against the 7 year specific transfer gift allowance (currently £250k).

b) The same aggregate above is also added to the gross estate, which also has to be below the excepted estate threshold (in my case its the £3m as 100% spouse exemption, but is lower otherwise ).

Both the 7 yr gift allowance and the gross estate needs to pass tests.

Thats my view which makes more sense. I also tested this on the HMRC checker which says whether IHT400 is required - which of course it did when I made PET and CT gifts from income >£250k.  Sorry for length.  Probably exactly what you thought anyway.