What qualifies as an 'excepted estate' for Inheritance Tax?
Whether or not an estate is an excepted estate determines which
Inheritance Tax forms you fill in as part of the probate process.
Most estates are excepted estates and this means they don't
have Inheritance Tax to pay. However there are other conditions
that the estate must meet to qualify.
On this page:
When an estate is an excepted estate
Usually, if an estate has no Inheritance Tax to pay, it will
be an excepted estate. However, this is not always the case.
Some estates that don't owe Inheritance Tax aren't excepted
estates, and you must fill in a full Inheritance Tax account
(form IHT400).
For deaths after 1 September 2006, the estate will generally
be an excepted estate if one of the following applies:
- it's a low value estate - valued at under the Inheritance
Tax threshold (£325,000 in 2011-12 tax year) but see
more about thresholds in the section below
- it's an exempt estate - the deceased person left everything
(or everything over and above the Inheritance Tax threshold)
to a spouse or civil partner living in the UK or to a 'qualifying'
charity (and the estate is valued at under £1 million)
- the deceased person was a 'foreign domiciliary' - they
lived permanently abroad and died abroad and the value of
their UK assets is under £150,000
For deaths on or after 6 April 2010 an estate will also be
an excepted estate if both of the following apply:
- the value of the estate is less than twice the Inheritance
Tax threshold (£650,000 in 2011-12 tax year)
- 100 per cent of the unused Inheritance Tax threshold from
a late spouse or civil partner can be transferred to the deceased
- find out more by following the first link below
This means you'll probably need to fill in form IHT205 Return
of Estate Information (or form C5 in Scotland) as part of the
probate process. You'll also need to fill in form IHT217 if
you're transferring an unused Inheritance Tax threshold from
a late spouse or civil partner to the deceased.
However, you must first be sure that the estate doesn't meet
any of the conditions that disqualify it from being excepted
(see the section below about when an estate is not an excepted
estate).
Transferring an unused
Inheritance Tax threshold
Find out more about
Inheritance Tax if the deceased was 'domiciled' abroad
Tax efficient giving
to charity - the basics
Find
Inheritance Tax forms
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When an estate is not an excepted estate
An estate won't be an excepted estate if any of the following
is true about the deceased:
- they left an estate worth more than the Inheritance Tax
threshold (£325,000 in 2011-12 tax year) or an estate
worth more than £1 million to a spouse, civil partner
or 'qualifying' charity
- 100 per cent of the unused Inheritance Tax threshold from
a late spouse or civil partner can be transferred to the deceased
but the estate is valued at more than twice the Inheritance
Tax threshold (£650,000 in 2011-12 tax year)
- the deceased's estate needs a transfer of unused Inheritance
Tax threshold from a late spouse or civil partner to avoid
paying Inheritance Tax and less than 100 per cent is available
to transfer - even if the full 100 per cent isn't needed
- they had a permanent home outside the UK when they died
but had a permanent home within the UK at one time
- they had assets in a trust valued at more than £150,000
or held more than one trust
- they had assets worth more than £100,000 outside
the UK
- they made gifts within seven years before they died and
the value of the gifts was more than £150,000 after
deducting any Inheritance Tax exemptions
- they made gifts into trusts
- they continued to benefit from a gift they had made to
someone else, such as their house or car (known as a 'gift
with reservation of benefit' - more on this in the link below)
- they had a life insurance policy that paid out to someone
else - but not to their spouse or civil partner - and they
had also bought an annuity (see more about insurance policies
in the link below)
- they had a personal pension from which they had not taken
their full retirement benefits, and when they were terminally
ill or in poor health they changed the death benefits payable
on it to increase the value of the lump sum
- they had - or were the beneficiary of - an 'Alternatively
Secured Pension' or unsecured pension
- they elected that property that they had given away should
be part of their estate for Inheritance Tax, rather than pay
a 'pre-owned asset' charge
- they were regarded as 'deemed domicile' in the UK - this
usually applies if the deceased wasn't born in the UK but
had lived here for the last 17 years, or was born in the UK
but died within three years of emigrating
In any of these cases, the estate is not an excepted estate
and you must fill in a full Inheritance Tax account (form IHT400).
Find out
about gifts that are exempt from Inheritance Tax
See
more about 'gifts with reservation' in our guide to passing
your home to your children
Insurance policies -
answers to common questions on the Inheritance Tax forms
Pensions - answers to
common questions on the Inheritance Tax forms
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Which Inheritance Tax threshold to use
When you're deciding if the estate is a 'low value estate'
you usually use the Inheritance Tax threshold that applied at
the date of death. However, if the death was after 5 April and
before 6 August in the same year, and you're applying for the
grant of probate (or 'confirmation' in Scotland) before 6 August
in the same year, then you must use the threshold from the previous
year.
Check Inheritance Tax thresholds
over the years
If the death was before 1 September 2006
Since 1 April 1981, the rules for deciding which estates are
excepted estates have changed a number of times. To find out
the rules that applied for deaths before 1 September 2006, follow
the links below.
Deaths between 6 April
2004 and 31 August 2006
Deaths between 6 April
2002 and 5 April 2004
Deaths between 6 April
1996 and 5 April 2002
Deaths between 1 April
1981 and 5 April 1996
For deaths before 1 April 1981, there weren't any excepted
estates, so a full Inheritance Tax account is needed in all
cases.
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More useful links
Find the right Inheritance
Tax and probate forms
Help with the Inheritance Tax
return of the estate information forms
Download the IHT206a - guidance
on exempt beneficiaries or 'donees', such as charities and national
institutions (PDF 105K)
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