Probate - What is an Excepted Estate?

29 November 2017

An excepted Estate is when Inheritance Tax does not have to be paid on a deceased person’s Estate in England or Wales.

Inheritance Tax

When someone dies, it may be necessary to go through the Probate process. This gives a Personal Representative (the Executor or Administrator) the legal authority to deal with the deceased person’s assets, and to distribute their Estate to their beneficiaries.

As part of the Probate process, the Personal Representative must find out whether Inheritance Tax is due on the Estate. If so, the Probate Registry will usually only issue a Grant of Representation once the tax liability has been paid.

But if Inheritance Tax is not payable, it is known as an excepted Estate.

When is there an excepted Estate?

An excepted Estate means that no Inheritance Tax is due. There are four main reasons why an Estate would not have to pay Inheritance Tax.

1. The value of the Estate is below the current Inheritance Tax threshold

Inheritance Tax (IHT) is only due if the total value of the Estate is over the Inheritance Tax threshold, which is currently £325,000. Therefore the Personal Representative must find out how much the deceased person’s assets are worth. If the total value of the Estate is less than £325,000 then Inheritance Tax won’t be due. This threshold may actually be higher if the deceased was married (see below).

2. A spouse’s nil rate band can be transferred

If the deceased was married and his or her spouse has already died, it may be possible to increase the Inheritance Tax threshold. This is because since October 2007, married couples have been able to combine their individual tax free thresholds.

So when the first spouse dies, their Personal Representatives must work out how much Inheritance Tax must be paid, if any. When the second spouse dies, whatever is left over from the first spouse’s tax free threshold can be added to the second spouse’s tax free threshold. This is called the transferrable nil rate band.

There is also a ‘Residence Nil Rate Band’ which might apply if an Estate is being left to the deceased’s children. For more information on this see Residence Nil Rate Band Explained.

This means that if a husband dies first and none of his tax-free threshold is used up, it doubles the wife’s threshold to £650,000. When she dies, the person administering her Estate can apply to transfer her late husband’s nil rate band to her Estate. Inheritance Tax will then only be payable if the total value of her Estate is worth more than £650,000.

3. It’s an exempt Estate

Inheritance Tax won’t be due if the deceased leaves everything to a surviving spouse, or a charity or organisation that qualifies as being exempt from Inheritance Tax, and the Estate is worth less than £1m. This is called an exempt Estate.

4. The deceased lived abroad

If the deceased was living abroad, Inheritance Tax might not be due in England and Wales. A ‘foreign domiciliary’ means that he/she lived abroad on a permanent basis, died abroad, and held few assets in the UK.

Even if you are dealing with an excepted Estate, you’ll still need to complete Inheritance Tax forms when applying for Probate. You must also be certain that Inheritance Tax is not payable, or HM Revenue & Customs may hold you accountable for the mistake.

With our Probate Complete Service we take full responsibility for getting Grant of Probate and dealing with the Legal, Tax (excl VAT), Property and Estate Administration affairs*.

*We can also pay all the costs of a Co-op Funeralcare funeral, providing the Estate owns sufficient assets which can be sold in due course to repay our costs.

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