Inheritance tax, often referred to as IHT, is a tax paid on the value of an estate when someone dies It is important to understand how IHT works and what your obligations are in order to ensure that the tax is paid correctly and in a timely manner.
When someone passes away, their estate is subject to inheritance tax if it exceeds a certain threshold, which is currently set at £325,000 in the UK for the tax year 2021/2022 This means that if the total value of the assets in the estate, including property, savings, investments, and personal belongings, is more than £325,000, IHT will be due on the amount over this threshold.
The current rate of inheritance tax in the UK is 40% on estates over the threshold, although there are some exemptions and reliefs that may apply in certain circumstances For example, spouses and civil partners can inherit an unlimited amount from each other tax-free, as long as they are both UK domiciled Additionally, there are exemptions for gifts made to charity and for certain types of assets, such as agricultural land or business assets.
Paying inheritance tax can be a complex process, and it is important to seek professional advice to ensure that the tax is calculated correctly and that all available reliefs and exemptions are claimed Executors of an estate are responsible for ensuring that the tax is paid, and they must complete the necessary paperwork and submit it to HM Revenue & Customs (HMRC) within certain timeframes.
One important thing to note is that inheritance tax is usually due within six months of the date of death, although there may be penalties for late payment If the estate is not able to pay the tax in full within this timeframe, it may be possible to pay in instalments, although interest will be charged on the outstanding amount.
There are several ways that inheritance tax can be paid, depending on the assets in the estate Cash in the estate can be used to pay the tax, or assets such as property or investments may need to be sold to raise the necessary funds paying iht. In some cases, it may be possible to pay the tax using money from the deceased’s bank account, although this can only be done if the account is in the deceased’s sole name.
If the estate includes a property, it may be necessary to get a professional valuation to determine its value for inheritance tax purposes This valuation will be used to calculate the amount of tax due on the property, which may need to be paid before the probate process can be completed.
In some cases, it may be possible to claim reliefs or exemptions to reduce the amount of inheritance tax due on the estate For example, if the deceased made gifts within seven years of their death, these gifts may be subject to inheritance tax, although there is a threshold of £3,000 per year for tax-free gifts Additionally, assets such as business or agricultural property may qualify for relief from inheritance tax, reducing the overall tax liability on the estate.
It is important to keep accurate records of all gifts and transactions made by the deceased in the seven years before their death, as this information will be needed to calculate the inheritance tax due on the estate Executors should work with a professional adviser to ensure that all reliefs and exemptions are claimed correctly and that the tax is paid on time.
In conclusion, paying inheritance tax is an important aspect of managing the estate of someone who has passed away Executors must ensure that the tax is paid on time and in full, and they should seek professional advice to ensure that the tax is calculated correctly and that all available reliefs and exemptions are claimed By understanding the rules and obligations surrounding inheritance tax, you can ensure that the tax is paid correctly and that the estate is distributed according to the wishes of the deceased.