What is Probate?

Probate or Letters of Administration is the legal right to deal with a person’s property, money and personal possessions following their death. Either executors (named in a will) or administrators, those next of kin left to deal with the estate can apply for a Grant. The application is sent to the Probate Registry, but it is not always needed. You should seek legal advice when determining whether an application must be made in your circumstances.

Inheritance Tax

It is also important to discover the value of the deceased’s estate as it may arise Inheritance Tax liabilities. Each individual has a Tax Free amount of £325,000 when they die, this is called a nil rate band (NRB). Any amount of an estate that exceeds these limits, will currently be taxed at the rate of 40%.

Often, people believe that they may gift assets away in their lifetime, in order to reduce the value of their estate at death. However, it is also important to be mindful of the rules surrounding such gifting. Each individual has an annual gift allowance (known as an ‘annual exemption’) of £3,000 a year without gifts being added to the value of an estate. Gifts above £3,000 in the 7 years prior to death may be added to the value of the estate and therefore taxed depending on who the gift was given to, the value of the gift and when the gift was given. It is also important to understand that gifts can include money, personal goods, property or stocks and shares. It may also include selling goods for less than their worth.

‘Excepted Estates’

Estates worth less than £325,000 fall into categories of ‘excepted estates’.

There are three categories of ‘excepted estates’ for this purpose, these are:

• Low Value – where the gross value of the estate and any lifetime chargeable transfers (gifts) and exempt lifetime chargeable transfers (exempt gifts – under exemptions for spouse or charity etc.) in the 7 years before death did not exceed the Inheritance Tax threshold
• Exempt Estates – where the gross value of the estate plus the gifts (as above) did not exceed £1 million and the amount passing to non-exempt beneficiaries did not exceed the Inheritance Tax threshold
• Estates of Non-UK Domiciliaries – UK assets consisting only of cash or quoted shares not exceeding £150,000. Prior to the changes, the requirements were also that the deceased was never domiciled in the UK.

‘Lifetime transfers’ (gifts) will be treated as chargeable where the amount given exceeds £3,000 in any one tax year.

Changes to the Probate Process

In 2018, HMRC was criticised for requiring too much information for estates where no Inheritance Tax was payable and they therefore aimed to simplify the process. The conditions for ‘excepted estates’ have therefore been significantly relaxed and a key part of the Probate application process (IHT205) withdrawn for these estates where the deceased died on or after 1st January 2022.

In a low value estate, where the deceased previously must not have made lifetime chargeable transfers (gifts) exceeding £150,000, this limit has now been increased to £250,000. Furthermore, where a deceased estate was only previously permitted an interest in a possession in a single settlement up to the value of £150,000 to be considered low value, it is now permitted £250,000. If the deceased estate does involve any assets held on trust (such as a life interest trust, right of occupation or discretionary trust) for them, this can be extremely complicated and we would always recommend seeking specialist legal advice in this regard.

For exempt estates, the previous limit, described above as £1 million has now increased to £3 million, the limit for lifetime chargeable transfers (gifts) has also increased to £250,000 (as above) and the limit for interests in a single settlement has increased to £1 million, however, no more than £250,000 of such settlement must pass to anyone other than a spouse, civil partner or charity.

Estates of foreign domicilaries have also experienced some changes. Now, the deceased must not have been beneficially entitled to any UK residential land owned through a close company or partnership and they must not have made any chargeable transfers in the 7 years prior to death. In this instance, applicants must now complete an IHT207. Domicile is a complex area of law, and it is therefore important to seek legal advice if such rules apply to your estate.

With regards to the application process for Probate, those estates arising no Inheritance Tax liability and where the deceased died on or before 31st December 2021 require the completion and submission of an IHT205 form, whether the applicant is applying online or via post. For those estates with no Inheritance Tax liability and where the deceased died on or after 1st January 2022, no IHT205 is required.

Caution!

Whilst the IHT205 is no longer required and whilst an estate may be considered ‘excepted’, an executor/administrator does have reporting duties with HMRC. It is therefore important to continue obtaining accurate balances and figures for all assets and liabilities to an individual’s estate in order to ensure that HMRC receive the correct figures for the estate.

For this reason, it is always beneficial to seek legal advice when an individual dies. A legal professional will be able to explain your role as an executor/administrator of the estate and the importance of carrying out this role. They will also be able to assist with identifying assets and liabilities, calculating Inheritance Tax, reporting to HMRC and distributing the estate. Please contact our offices should you require any legal advice in this regard.

If you need legal help or advice, please contact our Wills & Probate team on our freephone 0800 8 60 62 65.

Sophie Aldridge – Paralegal