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How Tell HMRC About Houses, Land, Buildings and Interest in Land for Inheritance Tax Through Form IHT405

Updated: May 17

Understanding Form IHT405 for Inheritance Tax on Property in the UK

When dealing with the estate of someone who has passed away, it's crucial to report their assets correctly to HM Revenue & Customs (HMRC) for Inheritance Tax purposes. Among the various forms required, Form IHT405 is specifically designed for reporting houses, land, buildings, and interests in land. This form is part of a comprehensive process to ensure the deceased's estate is accurately assessed for any Inheritance Tax due.


How Tell HMRC About Houses, Land, Buildings and Interest in Land for Inheritance Tax Through Form IHT405


Form IHT405: A Deep Dive

Form IHT405 is used alongside Form IHT400, the main Inheritance Tax account form. The purpose of IHT405 is to detail all real estate properties owned by the deceased at the time of death. This includes houses, land, buildings, and any share or interest in such properties. The form captures whether these properties were solely owned, jointly owned, or part of a trust. For each property listed, information required includes the address, description, ownership details, and the property's value. If the property was professionally valued, attaching a copy of the valuation report to the form is advisable.


The importance of accurate completion cannot be overstated. The information provided on Form IHT405 plays a critical role in calculating the total value of the estate, which in turn determines the Inheritance Tax liability. Estates that surpass the tax-free threshold (£325,000 as of the last update) may be subject to Inheritance Tax at 40%, making accurate valuation and reporting essential.


Professional Valuation and Legal Advice

Given the complexities involved in valuing and reporting property assets, seeking professional valuation and legal advice is often recommended. A professional valuation ensures that the figures reported to HMRC reflect the current market value, minimizing the risk of disputes or additional assessments by HMRC. Moreover, legal professionals specializing in estate and probate matters can provide invaluable guidance on completing Form IHT405 and other related forms, ensuring compliance with all legal requirements and optimizing the estate's tax position.


Further Steps

Correctly filling out Form IHT405 is a critical step in the estate administration process. It ensures that all property assets are accurately reported to HMRC, contributing to the overall Inheritance Tax calculation. Given the potential complexities and significant financial implications, seeking professional advice is highly advisable. For more detailed instructions on completing Form IHT405 and understanding its role within the broader context of Inheritance Tax planning, refer to official HMRC guidance and consult with legal and tax professionals.


Completing form IHT405

Completing Form IHT405 involves reporting details of all land, buildings, or rights over land owned by the deceased. Here's a step-by-step guide, including sections and questions, with suggested answers and examples:


  1. Property Details: Start by listing each property, numbering them for reference. Provide a full address or description, and if it's land without an address, include a boundary plan.

  2. Tenure: Indicate whether the property is freehold or leasehold. For leaseholds, mention the lease duration and annual ground rent.

  3. Details of Lettings/Leases: If the property was leased, attach the lease agreement. If no written agreement exists, provide tenancy start and end dates, rent details, who covers outgoings, and the tenant's name.

  4. Value of Agricultural Business or Woodlands Relief: Enter the value of any part of the property qualifying for agricultural, woodlands relief, or heritage exemption, but note that business relief cannot be claimed on property businesses.

  5. Open Market Value at Date of Death: Report the property's market value at the deceased's date of death, ensuring accuracy as this impacts the Inheritance Tax calculation.

  6. Special Factors Affecting Value: If any property's value is affected by factors like damage or development potential, detail these using corresponding item numbers.

  7. Insurance Coverage for Damages: Indicate whether insurance covered or will cover any damages, attaching relevant correspondence if a claim is intended.

  8. Property Sale Post-Death: If properties have been or will be sold within 12 months after death, provide details, including whether the sale was to a relative or friend, and if you wish to use the sale price as the value at the date of death.


For each section, it's crucial to provide accurate and comprehensive information. For instance, if detailing a leasehold property (Section 2), you might say, "Leasehold, 95 years remaining, annual ground rent £250." In the "Special Factors" section (Section 6), an example could be, "Property at 123 Example Road suffered flood damage in March 2020, significantly affecting its value. A structural engineer's report is attached."


Remember, supporting documentation, such as professional valuations and lease agreements, should accompany your submission. This ensures the accuracy of the information provided and can affect the estate's Inheritance Tax liability.

Completing Form IHT405 thoroughly and accurately is vital for a correct Inheritance Tax assessment. If you're unsure about any details, seeking professional advice or consulting HMRC directly can help clarify requirements and ensure compliance.



How to Complete Form IHT405 - A Step by Step Guide

Form IHT405 is designed for individuals managing the estate of someone who has passed away in the UK, specifically concerning the reporting of land, buildings, and interests in land owned by the deceased. This step-by-step guide will navigate through the form, highlighting key sections, what they entail, and how to accurately complete them, supported by illustrative examples.


Introduction to Form IHT405

The form is integral for detailing all land, buildings, or rights over land (like fishing rights) the deceased owned. It's complemented by the IHT400 'Notes' on valuing these assets. If a professional valuation is available, it must be attached to the completed form.


Contact Information

The form begins by requesting details of the person responsible for the valuation of the property. This is only necessary if different from the contact on form IHT400. Ensure this individual has the legal authority from the personal representative.

Example: If John Doe, a solicitor, is handling the estate's valuation, his details, including the firm's name, address, and contact information, should be provided.


Property Details

This section requires exhaustive details for each property, including its address, tenure (freehold or leasehold), and details of any lettings or leases. For leaseholds, include the lease term and annual ground rent.

Example: For a freehold property located at 123 Estate Road, the form would detail its open market value, any applicable agricultural or heritage exemptions, and specifics of any lettings.


Valuations and Reliefs

The form asks for the open market value of each property at the date of death, along with any deductions for agricultural, business, or woodlands relief, or heritage exemptions.

Example: A farm valued at £500,000 with £200,000 qualifying for agricultural relief would report both figures, explaining the basis for the relief claim.


Special Factors

Any special factors affecting property value, such as major damages or development potential, must be disclosed. If insurance covers damage, this should be noted, along with any intentions to claim on the deceased’s policy.

Example: If a property was undergoing significant repairs at the time of death, details of the damage, insurance coverage, and potential claims should be included.


Property Sale

Details of any property sold, on the market, or intended to be sold within 12 months of the death are required. This includes the sale status, asking or sale price, and if the sale price will be used for the valuation.

Example: If a property was sold for £300,000 immediately after the death, details of the sale and whether the sale price reflects the value at the date of death should be provided.


Final Steps

After completing the form, ensure all totals are accurately calculated and transferred to the corresponding boxes in form IHT400. This ensures the estate's overall value reflects the property values reported on form IHT405.


Accurately completing form IHT405 requires careful attention to detail and thorough documentation of the deceased's property assets. By following the above steps and examples, executors can ensure they meet the legal requirements for reporting and valuing estate assets in the UK.


In the UK, the process of reporting houses, land, buildings, and interests in land for Inheritance Tax through Form IHT405 has several key components and recent updates that executors and personal representatives should be aware of. This part of the article focuses on understanding trusts, exemptions, and the streamlined reporting process for excepted estates, providing a detailed look into managing estate reporting effectively.



Trusts and Inheritance Tax Considerations

Trusts play a significant role in estate planning and Inheritance Tax calculations. When assets, including houses or land, are placed in trusts, the type of trust affects how these assets are treated for Inheritance Tax purposes. For instance, assets held in a bare trust or an interest in possession trust are included in the estate for Inheritance Tax calculations, potentially qualifying for the additional threshold if direct descendants inherit the home. Conversely, assets in discretionary trusts are not included in the beneficiary’s estate for these purposes. Understanding the nuances of how different trusts impact Inheritance Tax is crucial for accurately completing Form IHT405 and related documentation.


Key Exemptions and Reliefs

Certain assets and transfers can qualify for exemptions and reliefs from Inheritance Tax, significantly affecting the estate's tax liability. For example, assets passed to a spouse, civil partner, charities, and some businesses or agricultural assets may be fully or partially exempt from Inheritance Tax. The residence nil rate band (RNRB) provides an additional threshold, increasing the amount that can be passed on tax-free when a home is left to direct descendants​.


Streamlining the Probate Process for Excepted Estates

Recent changes have simplified the reporting requirements for excepted estates, making the probate process more straightforward for many executors. For deaths on or after January 1, 2022, a short-form IHT return is no longer needed for excepted estates during probate applications. Instead, executors can make a declaration confirming the estate's value. The thresholds for excepted estates have been revised upwards, allowing more estates to qualify as excepted, thereby reducing the need for comprehensive Inheritance Tax returns in many cases.


These changes and considerations are essential for those dealing with the estate of someone who owned real estate in the UK. By understanding the impact of trusts, making use of available exemptions and reliefs, and benefiting from streamlined reporting processes, executors can navigate the complexities of Inheritance Tax reporting more effectively. This comprehensive approach ensures accurate and efficient management of the deceased's estate, complying with HMRC requirements while optimizing the estate's Inheritance Tax position.


For UK taxpayers dealing with the estate of a loved one, understanding the intricacies of Inheritance Tax (IHT) reporting is crucial. The completion of Form IHT405, specifically for reporting houses, land, buildings, and interests in land, is a key step in this process. In this final part of the article, we delve into practical tips for completing this form, the significance of accurate estate valuation, and the importance of maintaining comprehensive records for future reference.


Practical Tips for Completing Form IHT405

When filling out Form IHT405, attention to detail is paramount. Ensure that all real estate assets owned by the deceased are accurately reported, including their market value at the time of death. This requires gathering property deeds, valuation reports, and any other relevant documents that can substantiate the figures entered on the form. For jointly owned properties, clarify the nature of joint ownership since this impacts the valuation and how the property is reported.


Accurate Estate Valuation: The Cornerstone of IHT Reporting

Valuing the estate correctly is crucial for determining the correct amount of Inheritance Tax due. This entails not just real estate, but all assets and liabilities of the deceased. Professional valuations are often necessary, especially for unique or high-value properties. Remember, underestimating the value of the estate can lead to penalties, while overestimating may result in paying more tax than necessary. The valuation process should consider the type of ownership, the property's condition, and any development potential.


Record-Keeping: Ensuring Compliance and Easing Future Reporting

Maintaining detailed records is essential, not only for the current tax reporting but for future reference as well. This includes documentation of the valuation process, correspondence with HMRC, and records of any gifts made by the deceased within the seven years before their death. These records can be invaluable, especially when dealing with exemptions such as the transferable nil-rate band or the residence nil-rate band, which can significantly affect the amount of tax due.


The completion of Form IHT405 and the accurate reporting of houses, land, buildings, and interests in land for Inheritance Tax purposes require a thorough understanding of the regulations, careful valuation of the estate, and meticulous record-keeping. By adhering to these principles, executors can ensure that they meet their obligations to HMRC, minimize the estate's tax liability, and facilitate a smoother probate process. Executors uncertain about any aspect of the reporting process should consider seeking professional advice to navigate the complexities of Inheritance Tax reporting effectively.



A Real-Life Example of the Usage of Form IHT405

Imagine John Smith, a 65-year-old retired teacher living in the picturesque countryside of Yorkshire, who recently inherited his aunt's estate. The estate comprises a quaint farmhouse valued at £350,000, a small cottage in the Lake District worth £250,000, and a plot of land with development potential valued at £150,000. John, being the executor of the will, finds himself navigating the complexities of Inheritance Tax (IHT) using form IHT405.


The farmhouse, having been in the family for generations, qualifies for Agricultural Relief at 50%, reducing its taxable value. The cottage, used as a holiday let for the past five years, falls under Business Property Relief, exempting it entirely from IHT. The plot of land, however, does not qualify for any relief due to its development potential.


John begins by detailing each property on form IHT405, starting with the farmhouse. He lists its open market value at £350,000 and applies the Agricultural Relief, halving its value to £175,000 for tax purposes. Next, he moves on to the cottage, entering £250,000 as its value but marking it down to £0 due to 100% Business Property Relief.

Finally, the plot of land is listed at its full value of £150,000 with no applicable reliefs.

Throughout the process, John meticulously documents each step, attaching professional valuations and explaining the basis for each relief claimed. He calculates the total value of the land and buildings at £500,000 (£175,000 + £0 + £150,000), which he then reports on form IHT400 as part of the estate's overall value.


John's careful documentation and understanding of IHT reliefs allow him to accurately assess the estate's tax liability. By utilizing form IHT405 effectively, he ensures compliance with HM Revenue and Customs (HMRC) requirements, facilitating a smoother estate administration process.


This hypothetical scenario illustrates the practical application of form IHT405 in real-life estate management. Executors like John must navigate the intricacies of property valuation and tax reliefs, underscoring the importance of thorough preparation and understanding of IHT regulations in the UK.


Another Real-Life Case Study: Reporting Houses, Land, Buildings, and Interest in Land for Inheritance Tax Through Form IHT405

In the United Kingdom, the process of reporting houses, land, buildings, and interest in land for inheritance tax (IHT) can be complex. This case study illustrates the journey of Michael Thompson, who, upon inheriting his mother’s estate, had to navigate the intricate legal requirements of completing Form IHT405.


Background

Michael Thompson, a 50-year-old resident of Manchester, recently lost his mother, who left behind an estate comprising multiple properties, including a family home, a rental property, a small piece of agricultural land, and an interest in a commercial building. The total estimated value of the estate was £1.5 million. Michael's mother had not made any lifetime gifts, and the estate was above the nil rate band threshold of £325,000, necessitating the payment of inheritance tax.


Initial Steps

The first step for Michael was to determine the value of each property. This required obtaining professional valuations for accuracy and compliance with HMRC requirements. Michael hired a chartered surveyor to assess the properties. The valuations came back as follows:


  • Family home: £700,000

  • Rental property: £400,000

  • Agricultural land: £250,000

  • Interest in commercial building: £150,000


Gathering Documentation

Michael needed to gather several documents to complete Form IHT405, including:


  • Probate valuation of each property

  • Proof of ownership and title deeds

  • Recent property valuations

  • Any related debts or mortgages


Completing Form IHT405

Form IHT405, specific to houses, land, buildings, and interests in land, is a crucial part of the inheritance tax process. Michael meticulously filled out the form, detailing each property's value and ownership status. Here’s a breakdown of how he approached it:


  1. Section A: Details of the Property

  • Michael listed each property separately, providing addresses and valuation figures.

  • He included the chartered surveyor's valuation reports as supporting evidence.

  1. Section B: Valuation

  • For the family home valued at £700,000, Michael noted any outstanding mortgage, which in this case was £150,000. Therefore, the net value for IHT purposes was £550,000.

  • The rental property had no mortgage, so its value remained at £400,000.

  • The agricultural land, valued at £250,000, had a small loan of £50,000, making its net value £200,000.

  • The interest in the commercial building, valued at £150,000, was straightforward with no debts attached.

  1. Section C: Jointly Owned Property

  • Michael indicated that the family home was jointly owned with his sister, who inherited their mother's share. This meant only 50% of the home's value was attributable to Michael's mother's estate for IHT, reducing its taxable value to £350,000.


Calculations and Tax Implications

Michael’s next step was to calculate the total value of the estate for IHT purposes:


  • Family home (50% of £700,000): £350,000

  • Rental property: £400,000

  • Agricultural land (after debt): £200,000

  • Interest in commercial building: £150,000


Total taxable value: £1,100,000

Since the estate exceeded the nil rate band of £325,000, Michael had to calculate the IHT at 40% on the amount over this threshold:


  • Taxable amount: £1,100,000 - £325,000 = £775,000

  • IHT due: 40% of £775,000 = £310,000


Submitting the Form and Payment

Michael submitted Form IHT405 along with the main IHT400 form, which is the overarching inheritance tax account form. He included:


  • All supporting documents (valuations, title deeds, proof of mortgage debts)

  • The IHT calculation worksheet


To ensure the process was correct, Michael consulted with a solicitor specializing in inheritance tax. They confirmed the accuracy of his submissions and advised on the timing for the IHT payment.


Variations and Considerations

There are variations in handling IHT based on specific circumstances:


  • Agricultural Property Relief: If Michael’s mother had actively farmed the land, Agricultural Property Relief could apply, potentially reducing the taxable value of the agricultural land.

  • Business Property Relief: If the commercial building had been part of a trading business, Business Property Relief might reduce its value for IHT purposes.

  • Gifts and Trusts: If there had been any lifetime gifts or properties placed in trust, Michael would need to consider these in his calculations and reporting.


Final Steps

Michael paid the IHT due within six months of his mother’s death to avoid interest and penalties. After settling the IHT, he proceeded with applying for probate. The detailed record-keeping and professional advice ensured a smooth process.


Michael Thompson’s journey through the inheritance tax process illustrates the importance of detailed record-keeping, professional valuations, and understanding the legal requirements. By carefully completing Form IHT405 and seeking expert advice, Michael successfully navigated the complexities of reporting and paying inheritance tax on his mother’s estate. This case study highlights the critical steps and considerations necessary for compliance and efficient estate administration in the UK.



How an Inheritance Tax Accountant Can Help You With Inheritance Tax Management


How an Inheritance Tax Accountant Can Help You With Inheritance Tax Management

Inheritance Tax (IHT) in the UK can be a complex and daunting aspect of estate planning and management. With the threshold set at £325,000 beyond which assets are taxed at 40%, navigating through IHT obligations requires careful planning and consideration. This is where the expertise of an Inheritance Tax accountant becomes invaluable. This article delves into how an Inheritance Tax accountant can assist individuals and families in effectively managing their IHT liabilities.


Expertise in IHT Legislation

Inheritance Tax legislation is intricate and subject to frequent changes. An IHT accountant has a deep understanding of the current laws and can provide guidance on how they apply to your specific situation. They can advise on various allowances and reliefs available, such as the residence nil rate band (RNRB) which can increase the threshold if you're passing your home to direct descendants.


Estate Planning Strategies

Effective estate planning is crucial in minimizing IHT liabilities. An IHT accountant can help devise strategies that align with your financial goals and family circumstances. This might include setting up trusts, making tax-efficient gifts during your lifetime, or investing in assets that qualify for Business Relief. Their advice can ensure that your estate planning is both tax-efficient and compliant with current legislation.


Valuation of the Estate

Valuing an estate accurately is fundamental to determining the IHT due. An IHT accountant can oversee the valuation of property, investments, and other assets to ensure they reflect their true market value. Accurate valuations are essential not only for calculating IHT but also for defending the figures if queried by HMRC.


Completion and Submission of IHT Forms

The process of reporting an estate to HMRC involves completing and submitting several forms, including the IHT400 and accompanying schedules. An IHT accountant can manage this process, ensuring that all necessary documentation is accurate and submitted within the required deadlines. Their expertise can help avoid common pitfalls that might lead to delays or inquiries from HMRC.


Negotiating with HMRC

Should HMRC have questions or disputes arise regarding the estate's valuation or the IHT calculated, an IHT accountant can act as an intermediary. Their experience in dealing with HMRC can be invaluable in resolving disputes efficiently and can often result in a more favorable outcome for the estate.


Post-death Planning

Even after a death, there are decisions that can affect the IHT liability of an estate, such as Deed of Variation. An IHT accountant can advise executors and beneficiaries on such options, helping to redistribute the estate in a way that could reduce the overall IHT liability.


Use of Exemptions and Reliefs

There are several exemptions (such as the annual gift allowance) and reliefs (like Business Relief or Agricultural Relief) that can significantly reduce IHT liability. An IHT accountant can advise on how to make the most of these provisions, potentially saving thousands of pounds in tax.


Long-term Financial Planning

Inheritance Tax planning is not a one-off task but a part of your long-term financial planning. An IHT accountant can work with you over the years to adjust your estate planning as your circumstances change. This ongoing advice ensures that your estate remains as tax-efficient as possible while still meeting your personal and family objectives.


Family and Business Considerations

For business owners, IHT planning is particularly complex. An IHT accountant can provide specialized advice on how to structure business assets to qualify for reliefs and how to plan for succession in a tax-efficient manner. They can also help families understand the impact of wealth transfer on family dynamics and financial stability.


Peace of Mind

Perhaps one of the most significant benefits of working with an IHT accountant is the peace of mind it brings. Knowing that an expert is managing your IHT affairs allows you to focus on what's important, secure in the knowledge that your estate is in good hands.


Navigating Inheritance Tax in the UK can be challenging, but with the help of an IHT accountant, it becomes a manageable task. Their expertise in tax law, estate planning, and HMRC procedures can not only help minimize your IHT liabilities but also ensure that your estate is passed on to your loved ones as smoothly and efficiently as possible. Whether you're just beginning to think about estate planning or are dealing with the estate of a loved one, an IHT accountant can provide the guidance and support you need every step of the way.


20 Most Important FAQs about Reporting Houses, Land, Buildings, and Interests in Land for Inheritance Tax through Form IHT405 in the UK


Q1: What is Form IHT405?

A: Form IHT405 is used to report details of houses, land, buildings, and interests in land owned by the deceased at the time of their death to HMRC for Inheritance Tax purposes.


Q2: When should I use Form IHT405?

A: You should use Form IHT405 when you're completing an Inheritance Tax account for an estate that includes real estate assets.


Q3: Can I submit Form IHT405 online?

A: Currently, Form IHT405 must be submitted as a PDF file.


Q4: Do I need to complete Form IHT405 for every property the deceased owned?

A: Yes, you should detail all UK-based real estate the deceased owned, including their share in jointly owned properties, on Form IHT405.


Q5: How do I value the property for Form IHT405?

A: Properties should be valued at their open market value at the date of death. It's advisable to obtain professional valuations to ensure accuracy.


Q6: What if the property was jointly owned?

A: For jointly owned property, you need to report the deceased's share of the property, which depends on the nature of the joint ownership (joint tenants or tenants in common).


Q7: Are overseas properties included in Form IHT405?

A: No, Form IHT405 is specifically for UK-based properties. Overseas properties are reported on Form IHT417.


Q8: What happens if I make a mistake on Form IHT405?

A: If you discover a mistake after submission, contact HMRC as soon as possible to correct the error. Providing accurate and honest information is crucial to avoid penalties.


Q9: Can I attach additional sheets if there's not enough space on the form?

A: Yes, if you need more space, you can attach additional sheets. Ensure they are clearly labeled and reference the relevant section of Form IHT405.


Q10: Is it necessary to report a property that the deceased had given away but retained an interest in?

A: Yes, if the deceased had given away a property but retained an interest (e.g., continued to live there), it needs to be reported on Form IHT405.


Q11: What if the property's value changes after submitting Form IHT405?

A: If the property's value changes significantly before the estate is settled, you should inform HMRC, as this may affect the Inheritance Tax calculation.


Q12: How does Form IHT405 affect the overall Inheritance Tax calculation?

A: The value of the properties reported on Form IHT405 contributes to the total value of the estate, which determines the Inheritance Tax liability.


Q13: Are properties held in trust reported on Form IHT405?

A: Yes, if the deceased had an interest in possession in a trust that included properties, these should be reported on Form IHT405.


Q14: What documentation should accompany Form IHT405?

A: Supporting documentation, such as property valuations, deeds, and, if applicable, trust agreements, should accompany the form.


Q15: How do I report a property that the deceased was in the process of purchasing at the time of death?

A: You should report the property and any payments made towards its purchase up to the date of death on Form IHT405.


Q16: Can I deduct the mortgage from the property value on Form IHT405?

A: Yes, any outstanding mortgage on the property should be deducted from its value for Inheritance Tax purposes.


Q17: What if the deceased owned a share in a property development company?

A: Shares in companies, including property development companies, are not reported on Form IHT405 but on Form IHT411.


Q18: How does inheritance tax relief apply to properties reported on Form IHT405?

A: Certain reliefs, such as Business Property Relief, may apply to properties used in a business, reducing the estate's value for tax purposes.


Q19: What if the property was sold after the deceased's death but before the estate was settled?

A: Report the property's value at the date of death. Any increase or decrease in value after death until sale affects the capital gains tax, not Inheritance Tax.


Q20: Where can I find more guidance on completing Form IHT405?

A: HMRC provides detailed guidance on completing Form IHT405 on their website. It's advisable to consult this guidance or seek professional advice if you're unsure about any aspects of completing the form.

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