Which HMRC Form Do I Use?
MAKE A ROUGH LIST
The starting point before fully valuing assets should be to assess how complicated the estate is likely to be by using your best guess estimates or statements you have available.
You won't be able to submit any forms using these estimates but it's a very useful first step.
The value and complexity of the estate will have a bearing on which type of form is submitted to HM Revenue & Customs ("HMRC") for Inheritance Tax ("IHT") purposes.
Ultimately the value of the estate will determine if any IHT is due on the estate and if so, how much.
It is therefore crucial that you understand the types of asset involved and how complicated the valuation of these assets may be.
If you are at all uncertain over the valuation of assets consider asking for advice. You may not need an entire probate service, but more specific help and guidance on one area.
By asking for help on one area you could significantly reduce the fees you pay overall. All ICAEW Probate Firms will tell you any fee to be charged in advance and agree exactly what they are able to advise on.
Mistakes in the valuation of assets can be very costly, you could pay IHT when in fact none is due, or you could undervalue assets and become liable to a fine or penalties from HMRC.
ICAEW Probate Firms deal with HMRC on a daily basis in all areas of tax and can advise you on any areas you have concern over.
WHICH HMRC FORM DO I USE?
OK, so you are confident you can ascertain the value of assets with some initial accuracy. You now need to work out which HMRC form you are going to need to complete.
The form you use is dictated by the Gross Value of the Estate.
The Gross Value of the Estate is the value of all assets before taking off any deductions eg an outstanding mortgage, car loan, funeral costs, other debts.
The Master Financial Summary (in Excel or printable PDF) can help you determine the Gross Value of the Estate. This file will become your Master Financial Summary.
Enter figures where indicated and the Gross Value of the Estate will appear in Box H at the foot of the table.
If you are using the PDF version details of how to add each box are in the text.
If the Gross Value of the Estate is under £325,000 you can use form IHT205.
If the Gross Value of the Estate is under £650,000 and you have an available transfer of a whole nil rate band, eg from a previously deceased spouse or civil partner, you can use form IHT205.
If the Gross Value of the Estate is under £1m and the majority of assets are transferring to a surviving spouse or civil partner you can use form IHT205.
If the Gross Value of the Estate is over £325,000 and no assets are being transferred to a surviving spouse or civil partner you will need to use form IHT400.
Once you know which form you need to use you can use either the Master Financial Summary (for IHT205 purposes) or the IHT400 Summary (for IHT400 purposes).
These spreadsheets or printed forms can be updated throughout the process as and when you get more accurate figures. See 'Valuing the Estate'.
If at any point you breach the criteria for using IHT205 stop and swap to the IHT400 Summary.
TWO NIL RATE BANDS
Where a spouse dies, and was pre-deceased by a spouse you can claim to use the nil rate band of the pre-deceased spouse and the current deceased spouse. This only applies to the extent the nil rate band was not used by the first deceased spouse.
For example, a wife dies and her husband inherits everything as all assets were held jointly. The husband then dies. The husband’s estate can then use two nil rate bands. At present this would increase the nil rate band from £325,000 to £650,000.
GET AN IHT REFERENCE NUMBER
If you need to complete form IHT400 you will need an Inheritance Tax Reference Number before you can submit the form.
You can apply for this online. You will need to apply 3 weeks before you intend to make payment.
Get an HMRC IHT Reference Number
You will only need this number if you are submitting the full IHT400 account. As this account requires accurate valuations and up to date statements you will have to wait for these before you can submit the form.
If you apply for the IHT reference number at this point it will be ready when you are ready to complete the form.
USEFUL HMRC CONTACT DETAILS
Nottingham Office (for England & Wales IHT Submissions)
HMRC Trusts and Estates
PO Box 38
Castle Meadow Road
0300 123 1072