When a person dies, if their estate totals more than £325,000 a portion of this money has to pay inheritance tax. The 'estate' is comprised of the total valuation of the deceased's property, possessions and money.
Inheritance Tax Rates
There is no tax for any inheritance of less than £325,000, however for any sums over that amount a rate of 40% is applied. This rate can be reduced to 36% if 10% or more of the estate is left to charity.
What you pay inheritance tax on:
Broadly speaking you might be obligated to pay inheritance tax on the following:
- Houses/Properties of residence
- Commercial Businesses
- Listed shares and securities
- Unlisted shares and securities
What you don't pay inheritance tax on:
The exemptions for inheritance tax are as follows:
- Not-for-profit businesses
- (most) Agricultural land and properties.
- Heritage assets (preserved buildings, works of art etc.)
- 'Death in service' (e.g. armed forces, emergency services)
Paying Inheritance Tax
The elected person to execute the will will normally be responsible for paying the inheritance tax, using monies from the estate.
If the inheritance is in the form of a Trust, the designated 'trustee' will be responsible for handling the processing of any tax
If you've received inheritance, you wont have to pay any tax as it should have already been deducted. However you may be liable to pay tax in some instances, such as capital gains tax for sold assets
Deadlines and Interest
If you're executing the will, it can be a challenging and exhausting trial. HMRC expect the tax to be settled within 6 months of the person dying. After this point the estate will be expected to pay interest on the outstanding amount.
If all of the money is tied up in assets, as opposed to cash being available, the tax office will allow the inheritance tax to be paid in instalments over a period of up to 10 years, which will give you breathing space to sell the assets, whether that be property or stocks and shares. However interest will be charged on the outstanding balance, until it has been totally cleared off. If this applies to you, you'll need to first agree on the payment plan with HMRC by filling in the relevant IHT400 form