Paying Inheritance Tax

The role of Inheritance Tax (IHT) in probate

The inheritance tax (IHT) liability on an estate must be calculated prior to applying for a Grant of Representation.

What is a taxable estate?

The taxable estate is

• all the assets that the deceased owned
• plus the share of any assets that were jointly owned
• plus the share of any assets that pass automatically by survivorship
• less any liabilities or debts that might be due.

Once the extent of the tax is ascertained, the appropriate inheritance tax form must be completed and handed in to HM Revenue & Customs. In order to obtain the Grant you must be able to prove either that you have paid the correct amount of inheritance tax or that there is none to pay.

Through the Inheritance Tax-free allowance, net estates worth £325,000 or less are exempt from Inheritance Tax, but tax is payable at 40% on anything above this threshold, known as the nil-rate band.

Spouses or civil partners can transfer any unused portion of their inheritance tax-free allowance to the surviving partner on their death, so that when the other partner dies their allowance will total £325,000 plus anything not used by their deceased partner.

Special Inheritance Tax exemptions

Certain types of gifts that can be left in a will are exempt from Inheritance Tax. No IHT is payable on gifts to the following beneficiaries:

• husband, wife or civil partner
• charities and certain national institutions like museum and universities
• political parties (who must have a certain level of representation and support)

Some gifts given during your lifetime are also exempt from inheritance tax.

• Gifts of up to £3,000 pounds can be given away each year which will not be subject to inheritance tax when you die. These are very useful for bringing the value of your estate below the £325,000 threshold when you die.
• You can give £250 per year to as many people as you wish, but this cannot be to the recipient of your annual £3,000 gift. This is useful for people with large families or a lot of grandchildren.
• Wedding or civil partnership ceremony gifts are also exempt. Parents can give up to £5,000, grandparents £2,500 and anyone else £1,000. The caveat is that the gift must be given or at least promised shortly before or on the day of the ceremony.
• You are allowed to make regular gifts with your regular surplus income, albeit not using your capital. These may include monthly payments to someone or regular gifts for special occasions such as birthdays and wedding anniversaries.

If there is Inheritance Tax to pay

If the estate of your loved one has inheritance tax owed on it, it must be paid to HM Revenue and Customs within 6 months, otherwise it will be subject to interest. For some assets like your house or your business, you need only pay the inheritance tax by instalments. This is to give you the chance to sell the house if that is your intention.

Once the tax has been paid you will require confirmation from HMRC so that you can obtain the Grant of Representation and begin the administration process.

No Inheritance Tax to pay

Even if no inheritance tax is due to be paid, you will still need to prepare a tax return and confirmation is still required from HM Revenue and Customs that no payment is due. Furthermore, there are other taxes which must be settled. An Income Tax return form from 6^th April until the date of death must be filled in and any tax paid, and there may also be Capital Gains Tax which needs to be dealt with.