14th JULY 2022
Inheritance Tax will sometimes need to be paid from someone’s estate following their death. It is the responsibility of the executor or administrator of their estate to determine how much Inheritance Tax is owed and to ensure that it is paid before the deceased’s assets are transferred to the beneficiaries.
How to determine whether Inheritance Tax is due
If the deceased was married but survived their spouse, Inheritance Tax will generally be due if their estate is worth more than £650,000. If the deceased was not married or in a civil partnership, this threshold is £325,000. This threshold is known as the ‘nil rate band’. For any amount over the nil rate band, Inheritance Tax will be charged at 40%.
Exemptions to Inheritance Tax
If the deceased’s estate is valued above the nil rate band, Inheritance Tax may be payable unless one of the exemptions listed below applies to their estate.
If 10% or more of the estate is left to charity, the rate of Inheritance Tax for assets above the nil rate band will be reduced from 40% to 36%. Moreover, if the entire estate is left to charity, no Inheritance Tax will be payable.
Residence Nil Rate Band
If property from the deceased’s estate is left to direct descendants, an additional threshold will be added to the initial nil rate band.
In the year 2020, the maximum residence nil rate band was set at £175,000. Therefore, if a property was left to children or grandchildren, an additional £175,000 can be added to the original nil rate band of £325,000. This means that the total threshold for this estate will be £500,000.
When does Inheritance Tax need to be paid?
Inheritance Tax must be paid before the end of the sixth month following the person’s death. If you are the executor of the estate and are therefore responsible for ensuring that Inheritance Tax is paid, it is likely that you will need to pay it before this deadline because it is usually a requirement that this tax is paid before a Grant of Probate can be issued.
If the executor misses this deadline, HMRC will charge interest on the amount owed.