Inheritance Tax (IHT) is a tax on the estate (the property, money and possessions) of someone who has died. There is normally no IHT to pay if either:
- The value of the estate is below the £325,000 threshold; or
- The deceased leaves everything above the £325,000 threshold to their spouse, civil partner, a charity or a community amateur sports club
If the value of the estate is below the threshold, it must still be reported to HMRC. The standard IHT rate is 40%, which is paid on the part of the estate that is above the threshold.
IHT must be paid by the end of the sixth month after the person died and the grant cannot be obtained until the IHT is paid. Personal Representatives take on personal liability to make sure that the IHT and other tax payments are correct and IHT is becoming increasingly complex. There are reliefs for IHT which can be claimed and gifts made by the deceased during their lifetime can affect the amount payable.
Government figures show that an increasing number of estates are liable to IHT. In 2009/10, just 2% of estates were subject to IHT; this had risen to 4.2% by 2015/16.
Finding the money to pay the IHT bill can be a challenge if the estate is 'asset rich and cash poor'. It is possible to agree with HMRC to pay the IHT by instalments – although interest is due on the unpaid sum. This allows the Personal Representatives to obtain the grant which would then allow them to sell an asset (often a house) to realise the money to pay the balance of the IHT. It might be possible to borrow money to pay the IHT or the personal Representatives could promise to pay the IHT once they are in funds. The latter is a last resort for HMRC and represents a risk for the Personal Representatives.
It is important to ensure that the IHT calculation is correct and this is why it is often a good idea to take professional advice. This will cost the estate some money – but will offer the Personal Representatives vital peace of mind any may mean in the long run, that the administration of the estate is speeded up.
To discuss this or any other probate matter, contact us.