There are a number of online forms available on the HMRC website to guide those who may be applying for probate and are required to collect and submit required information related to the estate of a deceased family member. While this blog post will focus on the use and application of the IHT419 form, we will also explore details of dealing with inheritance tax, situations in which it may or may not be applicable and how to report financial details correctly to the HMRC.

Why Do I Need To Use IHT419?

In case someone dies and owes debts (whether to individuals or to financial instrituions), the person managing the affairs of the deceased’s estate before probate is granted will need to fill and IHT419 to declare the details of this debt. The IHT419 is used along with form IHT400 which is used in case there is Inheritance Tax to be paid on the estate of the deceased owner or even if there is no tax due, the estate does not qualify as an excepted estate. 

Deductions to be made through the IHT419 include the following:

  • There were certain amounts spent on behalf of the deceased; however, they have not been repaid 
  • There are current loans or bank overdrafts
  • There is an outstanding amount related to a life assurance policy
  • The deceased acted as guarantor for the debts of another person

In order to apply for probate on the property of a deceased family member, the claimant would need to find out if there is any Inheritance Tax due on the estate. For this purpose, they will need to value the money, property and possessions of the deceased by following these steps:

  • Identify details of the assets and debts of the deceased. These may include loans, mortgages, investments and savings
  • Estimate the value of the estate to calculate Inheritance Tax
  • Report the value of the estate to HMRC along with necessary forms

Gifts between partners or spouses are tax-free and will not be counted towards inheritance tax as long as they are permanent residents in the UK and are legally married or in a civil partnership. Additionally, donations made to charities, trusts and national organisations are also tax-free. 

Therefore, there will be no Inheritance Tax due on the estate of a deceased owner if (a) all of it is being passed to a spouse, partner or to charity (b) the value of the estate is less than £325,000.

Do I Need To Use IHT206 For Inheritance Tax?

The IHT206 is a detailed set of notes related to inheritance tax which is used as part of the probate process of the excepted estate (where inheritance tax is not applicable) of a deceased UK resident. It is used along with form IHT205 to state details of the estate of the deceased owner. 

The form IHT206 (2011) is only applicable under the following conditions:

  • You are filling to submit the IHT205(2011), ‘Return of estate information’ form
  • The deceased died between 6 April 2011 and 31 December 2021

In case of the death occurring before 6 April 2011, previous versions of the form will need to be referred to.

The purpose of the IHT206 is to provide detailed guidance about inheritance, probates, values of assets as well as for instructions on how to fill the IHT205 or any other necessary forms related to the estate of a deceased owner.

Can I Claim To Transfer Any Unused Nil Rate Band?

If you need to claim to transfer any unused nil rate band (RNRB) against the Inheritance Tax form IHT436 will be used.

The IHT436 can only be used in conditions where:

  • The spouse or civil partner of the deceased died before them
  • Death of the spouse or civil partner took place before 6 April 2017
  • If the death of the spouse or civil partner took place on or after 6 April 2017 without having used all of the RNRB available to them

The law that applies in his case is that if someone dies and their estate is valued at more than the basic Inehrtience Tax, the estate can qualify for a nil rate tax band on Inheritance Tax due on it.

Can I Gift 100k To Avoid Inheritance Tax?

While, you can gift £100,000 to an immediate family member; however, there are conditions under which inheritance tax will be applicable. 

The annual amount of tax-free gift money in the UK is £3,000. This means if you gift this sum of money to your family members (usually children and grandchildren) there will be no inheritance tax due on it.  

In case of a monetary gift that sums to £100,000, out of this the amount of £3,000 will be considered as a tax-free gift allowance while the remaining £97,000 will be classified as a potentially exempt transfer. 

However, should the person who has gifted this amount dies within a period of 7 years after transferring the amount, it will be counted towards their estate to calculate the amount of inheritance tax. The beneficiaries will not be expected to return the amount as it will only be considered for assessment purposes.

What Counts As Gifts?

The following items are counted as gifts and will not be counted towards one’s estate as long as deprivation of assets cannot be proved:

  • properties including a house, land or buildings
  • household and personal goods; such as furniture, jewellery or antiques
  • money
  • stocks and shares 
  • unlisted shares (held for less than 2 years before the death of the gifting party) 

If someone chooses to sell a valuable asset at a reduced value, the difference in the selling price versus the market value of that asset will be considered as a gift. 

Inheritance tax due on gifts worth up to £325,000 is not taken from the beneficiary but accounted for in the deceased’s estate; unless the gifting party passes away within 7 years of transferring the gift.

What Is Inheritance Tax?

Inheritance Tax is a tax that is levied on the estate of someone who has passed away and left behind property, money and possessions that need to be “managed” in an appropriate manner so that (a) if there is a will made by the deceased, the instructions are followed or (b) in the case that there is no will of the deceased, the estate is appropriately handed over to the legal heirs.  

The standard rate of Inheritance Tax is 40 per cent on an estate valued at or more than £325,000.

Even though, there is no inheritance tax levied on an estate that is valued below £325,000; however, you may still be required to report the property to HMRC. Similarly, if valuables above the £325,000 threshold are left behind in the name of one’s partner or spouse, a charity or a community club, there will be no inheritance tax levied. 

If the same property is left behind for children, the threshold will increase to £500,000. 

What Counts As Deprivation Of Assets?

When someone deliberately reduces their assets to avoid having to pay fees and taxes, it is considered as “Deprivation of Assets”.

While most individuals consider that transfer of savings, selling of one’s property or gifting their home to a family member is all that counts as deprivation of assets, that is not all. Any of the following actions can be counted as deprivation of assets (unless there is evidence to prove otherwise):

  • To give away a large sum of money
  • To transfer the title deed of one’s property
  • To spend a large amount of money which is in contrast with the spender’s usual spending pattern
  • To lose money through gambling 
  • To use savings in order to purchase items excluded from a means-test such as a car or jewellery

What Is Not Considered As Deprivation Of Assets?

According to the Guidance manual on assessment of capital, if the claimant has sold or transferred assets with the intention to:

  • reduce or return the debt that they owe (either to an individual, bank or the state),
  • make credit cards payments,
  • pay for their mortgage,
  • make payments for day to day expenses,
  • improve their quality of life (for e.g by purchasing a new car or rebuilding a kitchen),
  • improve their quality of health through medical expenses, or
  • go on a holiday

it will not be considered as deprivation of assets.

Conclusion:

Through this article, we have come to learn that the IHT419 is an essential form to be filled while declaring the debts on the estate of a deceased owner. This is usually done by the person applying for probate so that any inheritance tax on the estate is duly paid and all finances are declared before the HMRC. 

FAQs: Why Do I Need To Use IHT419?

Do you pay inheritance tax on debt?

Debts including loans, credit card payments and even certain expenses such as funeral costs are deducted from the chargeable amount of a deceased’s estate before Inheritance Tax can be applied. In case someone dies and owes debts), the person managing the affairs of the deceased’s estate before probate is granted will need to fill and IHT419 to declare the details of this debt.

What can be deducted from inheritance tax?

Assets that someone may have transferred 7 years prior to their death are not considered for an inheritance tax deduction. Additionally, outstanding bills and funeral costs can also be deducted before the estate is valued for inheritance tax. The standard rate of Inheritance Tax is 40 per cent on an estate valued at or more than £325,000.

Do I send IHT421 with IHT400?

Yes, when you fill and submit the IHT400, you will need to provide all necessary supporting documents including the IHT421.

Can IHT400 be submitted online?

The HMRC is currently making arrangements for individuals to submit the IHT400 online rather than having to take a printout and fill in the details in ink.

How much money can you inherit without paying inheritance tax?

While the annual tax-free gift allowance is £3,000; however when it comes to inheriting an estate, there is no inheritance applicable on the first £325,000 of the estate. Once this threshold exceeds, 40 per cent of the amount is due for inheritance tax. Even though, there is no inheritance tax levied on an estate that is valued below £325,000; however, you may still be required to report the property to HMRC. 

References:

IHT419 – Debts owed by the deceased

IHT400– Inheritance Tax account

Notes to help you fill in form IHT205(2011)

Factsheet 14 – Dealing with an estate

Claim transferable residence nil rate band (IHT436) – GOV.UK

Deprivation of assets | Social care means tests

Deliberate Deprivation of Assets

How Inheritance Tax works: thresholds, rules and allowances – GOV.UK).

How Inheritance Tax works: thresholds, rules and allowances: Passing on a home – GOV.UK

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