When Does Inheritance Tax Have to be Paid in the Probate Process?
15 February 2017
Inheritance Tax (IHT) is a tax that sometimes has to be paid after a person passes away. It is usually paid from the Estate by the deceased person's Executors or next of kin.
The amount of Inheritance Tax that has to be paid depends on the value of the assets in a person's Estate and who they have been left to. Inheritance Tax is typically paid when a person dies having survived their spouse, and has left an Estate valued in excess of £650,000. For people who were not married or in a civil partnership, the current Inheritance Tax threshold is £325,000. Inheritance Tax can be payable in other circumstances too.
When Must Inheritance Tax be Paid By?
In England & Wales Inheritance Tax must be paid by the end of the sixth month after the person dies. For example, if the person died in April, the IHT must be paid to HMRC by 31 October.
It's normally a requirement that the Inheritance Tax should be paid before Probate can be issued.
If the Executors miss the due date then HMRC will charge interest on the amount owing which must be paid in addition to the Inheritance Tax. If the Executors pay too much Inheritance Tax, HMRC will refund them and will pay them interest.
Inheritance Tax is normally paid from money in the deceased person's bank account. If this is not possible then it is sometimes paid by the family of the deceased directly.
Can I Pay Inheritance Tax by Instalments?
You can pay Inheritance Tax on some assets in instalments.
For example, if a deceased person has a house in their Estate which may take a while to sell, HMRC allows their Executors to pay the Inheritance Tax on this in annual instalments of 10% per year over 10 years. The first instalment falls due at the same time as the rest of the tax. If the Executors choose to pay some of the tax by instalments, HMRC will still charge interest on the whole amount.
Example of Inheritance Tax Due in Probate
As an example, imagine a person passes away on the 17th January. Their Executors work out that they have to pay £100,000 of Inheritance Tax in respect of the house, and £20,000 of Inheritance Tax in respect of the money in the deceased person's bank account.
The Executors have until the 31st of July to pay at least some of the tax.
If they choose to pay the whole amount in one go, then they will need to pay the whole £120,000. If they are able to do this before 31st July then there will be no additional interest.
If they choose to pay by instalments, they will have to pay £20,000 in respect of the bank accounts before 31st July. They will also need to pay £10,000 in respect of the first instalment of the tax on the house at the same time. They will then need to make payments of £10,000 before 31st July every year until the total amount is paid. If the Executors sell the house in the meantime, they can arrange to pay the remaining tax in one go.
With our Probate Complete Service we take full responsibility for getting the Grant of Probate and dealing with the Legal, Tax (excluding VAT), Property and Estate Administration affairs for a fixed fee which we agree with you upfront before any work starts.