Excepted Estate Scotland: What the 2022 HMRC Rule Changes Mean for Executors

Most Scottish estates do not owe Inheritance Tax. But until January 1, 2022, even an estate well below the tax threshold still required the executor to complete an additional HMRC form alongside the Confirmation application. That requirement has now been abolished for the vast majority of estates — and yet a surprising number of executors are still downloading obsolete paperwork because older websites have not caught up.

This post explains what an excepted estate actually is, what changed in 2022, and what you now need to do (and not do) when applying for Confirmation.

What Is an Excepted Estate?

An "excepted estate" is simply an estate that falls below the Inheritance Tax reporting threshold — one where HMRC has determined the administrative burden of a full return is disproportionate to the small or nil tax liability involved. For these estates, the executor does not need to submit a full IHT400 return to HMRC.

There are three categories of excepted estate:

1. Low value excepted estates The gross estate is £325,000 or less. This is the standard nil-rate band. If the estate is at or below this figure, it is automatically an excepted estate for most purposes.

2. Exempt excepted estates The entire estate (or the portion above £325,000) passes to a surviving spouse, civil partner, or registered charity. In this case, the threshold rises dramatically to £3,000,000 gross. So a large estate can still be "excepted" if it passes entirely between spouses.

3. Transferable nil-rate band cases Where the first spouse to die did not use their full nil-rate band (because they left everything to the surviving spouse), the unused portion transfers to the survivor's estate. This can raise the effective threshold up to £650,000. Where this applies and the estate is within the combined limit, it is also an excepted estate.

What Changed on January 1, 2022?

Before this date, Scottish executors had to complete both Form C1 (the Confirmation Inventory) and Form C5 (Return of Estate Information) when the estate qualified as excepted. The C5 was an HMRC form that asked a series of questions to confirm the estate's excepted status.

From January 1, 2022, Form C5 is abolished for excepted estates. You no longer complete it. Ever. For deaths occurring on or after this date:

• You complete Form C1 only
• The 2022 version of C1 includes a specific section where you declare the estate's excepted status and confirm it falls within the applicable threshold
• No separate HMRC form is required

Form IHT217 (which was used to transfer a nil-rate band in Scotland) has also been abolished. The transferable nil-rate band claim is now incorporated into the C1 declaration.

If you find a Scottish legal website, forum post, or solicitor blog that instructs you to complete a C5 for a death that occurred after January 1, 2022, that guidance is wrong. The form no longer exists for most estates.

The one situation where more extensive HMRC reporting is still required is where the estate exceeds the applicable excepted estate threshold — typically where the gross estate is above £325,000 and is not passing to a spouse or charity. In that case, you complete Form IHT400 with the relevant schedules, pay any Inheritance Tax due by the end of the sixth month after death, and obtain an HMRC reference before applying for Confirmation. This is a genuinely complex process that usually warrants professional help.

How to Declare an Excepted Estate on Form C1

The 2022 version of C1 contains a dedicated section on excepted estate status. You will need to confirm:

• The total gross value of the estate (before deductions)
• That the estate falls within the relevant excepted estate category
• Whether you are claiming a transferable nil-rate band from a deceased spouse or civil partner

The gross value for this purpose means the total of all assets at the date of death, without deducting any debts, mortgages, funeral expenses, or administrative costs. The fact that there is a £180,000 mortgage on a £300,000 house does not reduce the gross estate figure — the house is still listed at £300,000.

A specific complication applies in Scotland: for excepted estate purposes, you must include the value of any heritable property even if it passes outside the estate by a survivorship destination. The title deed mechanism that bypasses confirmation does not necessarily bypass the IHT valuation. Always check with the HMRC guidance or a solicitor if heritable property with a survivorship destination is involved and the total values are near the threshold.

HMRC's Post-Grant Query Window

Declaring an estate as excepted on the C1 form is not a rubber-stamp process. HMRC retains a 60-day window from the date Confirmation is issued to request additional information or a full IHT return if it has reason to doubt the excepted status.

In practice, HMRC does not query routine excepted estates where the figures are clearly within the threshold. But if the estate value is close to £325,000, or if the deceased had made large gifts in the seven years before death, HMRC is more likely to look closely. Gifts made within seven years of death may be relevant to the IHT calculation and must be disclosed in the C1 excepted estate declaration.

If HMRC does request a full IHT400 within the 60-day window, you will need to comply promptly. Failure to do so can result in penalties.

The £3,000,000 Exempt Excepted Estate Limit

One of the most significant practical changes from 2022 is the dramatic increase in the exempt excepted estate threshold. Before January 1, 2022, if a married person died leaving everything to their spouse, the estate was still only treated as exempt up to £1,000,000. Above that figure, even an entirely spouse-passing estate had to file a full IHT return to claim the spousal exemption.

The 2022 regulations raised this to £3,000,000. The practical effect is that the overwhelming majority of even moderately large Scottish estates passing to a surviving spouse now qualify as exempt excepted estates, removing the obligation to file IHT400 entirely. This is a significant simplification for many families.

What Executors Should Do Now

Step 1: Calculate the gross estate value — every asset at its date-of-death value, before any deductions.

Step 2: Determine the applicable excepted estate threshold (£325,000, £650,000 with transferable nil-rate band, or £3,000,000 for estates passing to spouse/charity).

Step 3: If below the threshold, proceed with the 2022 Form C1. Complete the excepted estate declaration section. Do not attempt to complete Form C5 — it no longer exists for most estates.

Step 4: If above the threshold, obtain an IHT reference from HMRC, complete Form IHT400 with the relevant schedules, pay any tax due, and then apply for Confirmation with the C1.

Step 5: After Confirmation is granted, retain all valuation evidence for at least seven years in case HMRC raises a query.

If you're unsure whether your specific estate qualifies as excepted — particularly if the estate is near the threshold, if the deceased made gifts in the last seven years, or if there is a transferable nil-rate band to claim — the Scotland Probate Process Guide includes a structured excepted estate decision tree and worked examples covering the most common scenarios. It also explains how to handle the C1 excepted estate declaration for estates involving both heritable and moveable assets.

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