What Is an Inheritance Tax Return?

Note: The following article is part of our Complimentary Articles Series, designed to provide additional insights and detailed information on specific topics within estate planning.

In conjunction with the following article, we recommend you review the following pillar articles to understand inheritance taxes comprehensively.

• What is Inheritance Tax (IHT)?
• How Do I Pay Inheritance Tax to HMRC?
• How Much Inheritance Tax Do I Have to Pay?
• When Does IHT Need to Be Paid?

INTRODUCTION

Inheritance tax (IHT) is a tax on your Estate after you pass away. 

Your Estate includes money, property, and other possessions and assets.

Irrespective of whether the Estate owes IHT, you must submit a Form.

This article explains which forms to use, depending on whether or not the Estate owes IHT.

FIRST, DETERMINE WHETHER YOU NEED TO PAY INHERITANCE TAX

You are exempt from paying IHT if:

• Below Threshold: Your Estate's value is below the £325,000 threshold.

• Above Threshold: You pass on everything above the £325,000 threshold to your spouse, civil partner, a charity, or a community amateur sports club.

IMPORTANT EXCEPTION: If your spouse or civil partner is not UK-domiciled, there might be limits to the amount you can transfer to them without incurring IHT. Transfers above this limit could be subject to taxation.

Note: Even if your Estate's value falls below the threshold, you must still report its value to HMRC.

You can increase your threshold to £500,000 if:

• You leave your home to your children or grandchildren. This is known as the "residence nil rate band (RNRB)."

Note: "Children" includes adopted, foster, or stepchildren.

WHEN IHT IS DUE: USE FORM IHT400

When inheritance tax is due, you should use Form IHT400. This extensive form is used for larger or more complex estates valued over the £325,000 threshold.

How to Complete and Submit Form IHT400:

• Complete the Form: You'll need to provide detailed information about the deceased individual's Estate, including all assets and debts, any gifts made within seven years of death, and any other relevant financial information.

• Provide Supplementary Schedules (where appropriate): Depending on certain assets in the Estate, like property, stocks and shares, and business interests, you'll need to provide Supplementary Schedules in addition to IHT400.

• Submit Forms to HMRC: After completing the forms and any required schedules and accompanying paperwork, send the forms to HMRC, ensuring you keep a copy for your records.

• Payment of Taxes: In most cases, securing the Grant of Probate is contingent upon payment of outstanding taxes. However, in some cases, payment may be disbursed over an extended 10-year period, particularly when assets like property are involved.

• Grant of Representation: After HMRC processes Form IHT400, they will issue a receipt or "clearance." This is required when applying for a Grant of Representation.

WHEN NO IHT IS DUE: USE FORM IHT205

Assuming you have already determined no IHT liability (i.e., your Estate is below the £325,000 IHT threshold, and no Trusts of gifts exceed this allowance), use Form IHT205.

IHT205 is less complicated than Form IHT400 and is used for Estates where no taxes are owed. Compared to IHT400, it still requires information about the deceased individual's assets and liabilities, but in less detail.

How to Complete and Submit Form IHT205:

• Prepare Form IHT205: Provide the necessary information about the Estate using Form IHT205.

• Complete Statement of Truth: This document is a formal commitment made by the Executors or Administrators ("Personal Representatives") to manage the Estate. It includes their commitment to gathering all the deceased individual's assets, settling any outstanding debts, and distributing the remaining Estate in accordance with the instructions in the Will (or the rules of intestacy when there's no Will).

• Maintain Accuracy and Compliance in All Documents: Double-check that you've completed Form IHT205 and the Statement of Truth accurately. Any errors or omissions could result in legal complications, further delaying the Probate process. To be on the safe side, if there are elements you're not sure about, your Estate is somewhat complex, or its value is on or near the threshold, we encourage you to seek professional advice to ensure compliance and accuracy.

• Submit Form IHT205 and the Statement of Truth to Probate Registry: Whereas the more complicated Form IHT is submitted to HMRC, Form IHT205 and the Statement of Truth are sent directly to the Probate Registry, not HMRC.

• Apply for Grant of Representation: Submitting Form IHT205 and Statement of Truth to the Probate Registry then becomes part of the application for a Grant of Representation. This legal document certifies the Personal Representative's authority to manage the deceased individual's Estate, proving that the individual has the legal right to do so. Once the Probate Registry processes, approves, and issues the Grant of Representation, the Personal Representative will have the legal authority to commence the Estate administration process.

Note: Given the intricacies involved in valuing your Estate, filling out the relevant forms and dealing with HMRC, we highly recommend you consult with a specialist tax adviser, especially in the case of a more complex Estate. This will maintain reporting accuracy and transparency and prevent potential legal issues or additional taxes.

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