What is an excepted estate?

What is an excepted estate?

An excepted estate is where no inheritance tax needs to be paid. When starting the probate process and dealing with a Will, you’ll need to figure out exactly how much the estate is worth in total. After that, you can work out whether you’re dealing with an excepted estate. Here’s a look at how inheritance tax can affect an estate, and why an estate might be exempt from it.

What’s Inheritance Tax?

After someone dies, to get the legal authority to dish out the contents of a Will, you’re going to have to work out whether inheritance tax is due.

We’ve covered the ins and outs of the Probate process here, and outlined the figures and thresholds in our article on inheritance tax.

If Inheritance Tax isn’t payable, you’ve got what’s known as an excepted estate on your hands.

When is there an excepted estate?

Here is a round up of the circumstances where there’s an excepted estate:

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

If the total worth of your assets after you die exceeds £325,000 (for one person) then you’ll be taxed at 40%. If you’re a couple who own a property, you can also leave a home worth up to £625,000 without getting taxed (worth up to £325,000 for a single person).

So inheritance tax is only due if the total value of the estate is over that £325,000 threshold. When it comes to the probate process, the person in charge of the will (known as the executor, Personal Representative or administrator) will need to find out how much exactly the dead person’s assets are worth.

 A spouse’s nil rate band can be transferred

The inheritance tax threshold can rise if you’re married, or if a married partner has already died. Since 2007, married couples have been able to combine their individual tax free thresholds. This means the estate can be worth a significant amount and still be excepted.

What’s known as the transferable nil rate band plays a big part here. When the first person in a married couple dies, you’ll need to work out how much inheritance tax must be paid, if any. But when the second partner dies, whatever is left over the from the first person’s tax free threshold can be added to the second person’s threshold. 

It’s an exempt Estate

Inheritance tax isn’t due if the person who died leaves everything to a surviving spouse or civil partner – this is what’s known as an exempt state.

An estate is also exempt if it belongs to a charity or organisation, which must be worth less than £1m.

The person lived abroad

If the person who died was living abroad, then inheritance tax might not be due in this case (in England and Wales at least).

If you lived abroad on a permanent basis, die abroad, and held few assets in the UK, then you’re what’s known as a ‘foreign domiciliary’.

You still need to fill out Inheritance Tax forms

Even if you’re dealing with an excepted estate, you’re not exempt from the boring administrative side of probate.

You’ll still need to complete Inheritance Tax forms when applying for Probate. Make sure you’re certain that inheritance tax is not payable, otherwise good old HM Revenue & Customs might want a word or two.

To get an inheritance tax form, visit the inheritance tax page on the GOV.uk website.

Find out more

Check out our Money Issues hub, as well as our Legal Matters page.

Take a look at our article on what to expect when going through probate

And our article on inheritance tax

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