Menu

Paying Inheritance Tax

If someone you know has passed away and you are, or think that you are likely to be, one of the beneficiaries of their estate, you may need to think about Inheritance Tax (IHT) payable on their estate.

Who is responsible for paying Inheritance Tax?

Testate

If the deceased died testate (having made a will) then paying IHT is usually the responsibility of the named executor of the estate. If that person is you and you don't know whether IHT is due or how much to pay, you may wish to take advice from a tax planning expert.

If you know that the total value of the deceased's estate (money, shares, trusts, property, and any other assets less any debts) is likely to exceed the IHT threshold of £325,000, you can work out a rough calculation that 40% of the value of the estate over that threshold will be due in IHT.

For example, if the total value of a deceased person's estate is £750,000 then 40% of the taxable £425,000 would render a tax bill of £17,000.

The IHT rate is reduced to 36% if the deceased left 10% or more of the estate to charity. You can make payments before you know the exact amount of IHT owed by the deceased person's estate. These are known as 'payments on account'.

Intestate

If the deceased died intestate (there is no will) then an administrator will act as the personal representative of the deceased. It will be up to these people to ensure that the applicable IHT is deducted from the estate before legal beneficiaries receive their share.

However, if you are a beneficiary of the estate, you may in less common circumstances have to pay IHT if:

  • You receive a share of the estate and the administrator does not or cannot pay it
  • You benefit from assets held in trust and the trust does not or cannot pay the IHT
  • They were not your civil partner or spouse but you were in joint ownership of a property with them and you inherit their share of the property
  • You received a taxable gift* within the last seven years of the life of the deceased person and their gifts totalled more than £325,000 (clearly such cases are rare).

* Taxable gifts are those that exceed £250 in value. Wedding and civil ceremony presents are exempt up to a value of £5,000 to a child (as in grown-up direct offspring), £2,500 to a grandchild or great-grandchild, and £1,000 to anyone else. The gift must be given on or shortly before the date of the wedding or civil partnership ceremony.

What are the deadlines for paying Inheritance Tax?

Any IHT should usually be paid within six months of death. The six month period is measured from the end of the month in which the death occurred. However in some cases IHT may be payable over a ten year period if the assets are in the form of property. If payment is not made by the deadline, HMRC will begin to charge interest.

Inheritance Tax and Trusts

Different rules may apply to any assets held in trust. The main situations when IHT is due are when:

  • Assets are transferred into a trust
  • A trust reaches a 10-year anniversary of when it was set up (there are 10-yearly IHT charges)
  • Assets are transferred out of a trust (known as 'exit charges') or the trust ends
  • Someone dies and a trust is involved when sorting out their estate

How do I go about paying Inheritance Tax?

Before you can pay, you'll need to get a reference number. You can then pay from:

  • The bank account of the deceased person
  • Your own bank account
  • A joint account you held with the deceased
  • Any National Savings and Investments held by the deceased
  • Any government stock held by the deceased

If you pay from your own bank account you can then claim it back from the deceased's estate, once you've got a "grant of representation" (this is called a "confirmation" in Scotland).

Next steps

For more information on how to mitigate Inheritance Tax on your own estate read our guide mitigating Inheritance Tax or speak to a financial adviser.

Last updated: 02 June 2015

Momentum