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Inheritance Tax

Browse our comprehensive guide to Inheritance Tax

Last updated: 17 July 2019

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What is Inheritance Tax?

Inheritance Tax is a tax which needs to be paid on the estate of your loved one.

What are the Inheritance Tax rates?

The rate is 40% on values above the Inheritance Tax threshold of £325,000. However, the rate may be reduced to 36% if at least 10% of the estate is donated to charity.

Who should pay Inheritance Tax?

Normally the executor or administrator pays Inheritance Tax using money from the estate. In case there is Inheritance Tax to be paid on trusts, the trustees are the ones responsible for the payment.

Although you may have to pay for other taxes, you usually do not have to pay the Inheritance Tax if you have received an inheritance (there are some exceptions to this, however).

You may also have to pay Inheritance Tax if your loved one gave you a gift before they died.

When do I need to pay for Inheritance Tax?

There is an Inheritance Tax allowance, or threshold, of £325,000. If the estate is valued at over £325,000, Inheritance Tax needs to be paid – except in some cases, such as when the husband, wife or civil partner inherits the estate. However, thresholds may vary for previous years.

There are also other Inheritance Tax exemptions and reliefs, for example for businesses and agricultural property.

If you need to pay Inheritance Tax, you should inform HM Revenue and Customs (HMRC) of the death, regardless of probate and letters of administration.

When the Inheritance Tax needs to be paid, some of it must be paid before probate or letters of administration are granted. After those documents are granted, a final tax bill will be underway.

How do I know if I have to pay for Inheritance Tax?

First of all, you will have to calculate the value of the estate. If it is valued above the Inheritance Tax threshold, you will have to pay the tax. If it is below, there is no need to pay for it.

If you do need to pay, you will need to fill in form IHT400 (if you are in Scotland you will also have to fill in form C1).

If you do not need to pay, you will need to fill in form IHT205 (or you will have to fill in both forms C1 and C5 if you are in Scotland).

Depending on the case, you will have to send other forms as well.

You or your solicitor will have to send the form(s) along with an application for probate, also known as a ‘grant of representation’ (called ‘confirmation’ in Scotland).

The grant of representation or confirmation gives you the right to act as an executor or an administrator to deal with your loved one’s estate.

What is the deadline for paying Inheritance Tax?

The deadline is six months after the death and the amount is usually paid by the executor or administrator of the estate – if it is after this period you will have to pay interest.

There is the option for you to make early payments (with no interest charged) before you know how much Inheritance Tax is owed.

If the estate has assets that may take a long time to sell, such as property or shares, you can pay the Inheritance Tax in instalments for more than 10 years on those assets.

How to pay Inheritance Tax

You will need an Inheritance Tax reference number from HMRC at least three weeks before you make a payment. You can apply for a reference number online, or by post using form IH422.

Once you have your reference number, there are several ways to pay Inheritance Tax to HMRC. The most common of these are:

  • Through your bank or building society
  • By cheque through the post
  • From your loved one’s bank account – this is known as the ‘Direct Payment Scheme’ and you will need to ask the bank or building society to make you a ‘personal representative’ of the account.

For more Inheritance Tax advice you may wish to consult the HMRC website, or seek help from a financial advisor or solicitor.

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