How is Inheritance Tax paid?

25-Jan-2010

On Assets valued at £325,000 or more

In the majority of cases, the Inheritance Tax is due within six months of the end of the month in which the person died.  If the Tax is not paid within this time, interest is charged on the amount that is still owing by then. If the value of the estate is centred around an asset such as a house, it is possible to make the Inheritance Tax payments in yearly instalments over a ten-year time period. 

On Gifts valued at £325,000 or more

If you received a valuable gift from someone (worth £325,000 or more) and they survive for 7 years or longer after giving the gift to you, then you owe no Tax.  However if they do not survive for at least 7 years after giving you the gift, you may need to pay Inheritance Tax on it.  If this is the case, the same time limit of six months following the end of the month in which the person died also applies.

On a Trust Fund valued at £325,000 or more

If you are paying Inheritance Tax on money you have received in a trust (again, valued at £325,000 or more), the payment deadlines are different, and depend on when the assets are transferred over to you.  If the money transfer is made between 6^th April and 1^st October, you have until 30^th April the following year to pay your Tax.  

However, If the transfer of money overlaps two years, so for example if it is made between 30^th September in one year and 6^th April in the following year, the Tax due date is six months after the end of the month in which the transfer was made.

Penalties for late payment

If you cannot pay your Inheritance Tax by the due date, you may have to pay a penalty fee.  This would be charged on top of any interest that you owe on the outstanding tax.  There are times where a 'reasonable excuse' would mean that the penalty charge would be waived, such as prolonged industrial action at the Post Office or loss of the person's financial records.  However, in the vast majority of cases, the penalty fee would be charged.