Whither the IHT 205

 In Gill's Blog

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The excepted estate rules have a long history and pre-date the introduction of Inheritance Tax. Some of us have been in the business long enough to remember that it was the job of the adviser to apply the excepted estate rules without a form for many years.

Back in 2003 the Law Society worked on Guidance to remind the profession about these rules which went something like this:

“Solicitors are reminded that Personal Representatives can be subject personally to a fine if they fail to comply with Inland Revenue requirements.

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 Where a solicitor acts as Personal Representative they must ensure that they comply with the terms of IHT[12] in respect of an excepted estate.

Where a solicitor is not himself/herself a Personal Representative, but is instructed by a PR, the solicitor is recommended to ensure that the terms of the excepted estate rules are explained to the PR and the possibility of penalties is also explained.  The solicitor should obtain written confirmation from the PRs that they have complied with the appropriate requirements. In considering the information to be given and the confirmation to be obtained, the solicitor should have regard to the type and nature of their client (e.g. professional member of a regulatory body, etc.).

Where instructions come from a person holding a Power of Attorney for the PR, the solicitor should consider whether enquiries need to be made regarding the validity and continuance of the Power.  The solicitor should also explain the requirements and possible penalties to the attorney and obtain, preferably in writing, from the attorney his/her confirmation that s/he has made enquiries of the relevant matters of the PR and that the information given to the solicitor conforms with the answers to those enquiries.”

HMRC was not satisfied with this Guidance and so the IHT 205 was conceived in 2004. At the time the profession voiced general dissatisfaction with the introduction of a new form which represented extra work in those estates where the IHT 400 was not required.

It is therefore with a rye smile that I read the posts on LinkedIn expressing disquiet about its abandonment by HMRC. There is much support to-day for the form as a means of ensuring the excepted estates rules are complied with, especially by lay PRs who may otherwise not be aware of the difference between IHT gross and net estate figures and probate gross and net estate figures.

To-day professionals are rightly concerned to manage risk and many practitioners see the completion of the IHT 205 as just that – a means to ensure clients and junior practitioners comply with the rules.

The IHT 205 has effectively been abolished for deaths on or after 1 January 2022 because the Office of Tax Simplification saw it as duplicating the effort of PRs in that you had to provide similar information to HMRC as to HMCTS in low value estates. 

Perhaps its abolition will prove to be a step too far but in the meanwhile, based on previous guidance, firms would be well advised to replace the IHT 205 in their procedures by a form of their own which PRs sign and on which it is made clear that the content of the information provided will be used to apply for probate and if the information contained in it proves to be incorrect, that personal penalties may well follow.

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