Before the Grant of Probate can be applied for, any Inheritance Tax that’s due will need to be paid. Once paid, HM Revenue & Customs will issue a receipt for this within 4 to 6 weeks, which will need to be sent to the Probate Registry (Court) along with the application for the Grant of Probate. Providing there are no issues with the application, the Grant of Probate will then be issued 2 to 3 weeks later.
With our Probate Complete Service we take full responsibility for obtaining Grant of Probate and dealing with the Legal, Tax (excl VAT), Property and Estate Administration affairs*.
*We can also pay all the costs of a Co-op Funeralcare funeral, providing the Estate owns sufficient assets which can be sold in due course to repay our costs.
Calculating Inheritance Tax
When someone dies, the money, assets and property that they leave behind is called their Estate. Inheritance Tax is payable on a person’s Estate when its total value is more than the available Inheritance Tax threshold. The Estate will include all of the person’s assets, including certain type of gifts made while they were alive, any property that they owned, assets held in trust, and any assets held abroad.
The Inheritance Tax threshold is called the ‘nil rate band’. The amount of a person’s nil rate band at the time of their death will depend on several factors, such as their marital status and who will be inheriting from their Estate. For example certain Beneficiaries (such as spouses, civil partners and charitable organisations) are not liable for Inheritance Tax. There is also a tax allowance if a person is leaving their home to a direct descendant. This is called the residential nil rate band.
In the most straight forward of cases, a single person with no children who isn’t leaving anything to charity will have just the individual nil rate band applied, which is currently £325,000. Inheritance Tax is payable on the value of the Estate over and above the nil rate band, and this is usually taxed at 40%.
In order to calculate the amount of Inheritance Tax that needs to be paid, it is important to accurately value all of the Estate assets and liabilities (debts). A full Inheritance Tax account form (IHT400) can then be completed and submitted to HM Revenue & Customs (HMRC) for them to review.
When Does Inheritance Tax Need to Be Paid?
Inheritance Tax can be paid at different times for different assets. HMRC recognises that property and shares may need to be sold before the tax can be paid on those assets, and usually these types of assets cannot be sold without a Grant of Probate.
The Inheritance Tax on these types of “non-liquid assets” can be paid in ten annual instalments, although it is important to note that interest will be payable on these instalments until all of the tax has been paid in full. So the sooner the tax can all be paid the less interest will be payable.
The Inheritance Tax on “liquid” assets such as money in bank accounts is payable at the end of the sixth month after the death, along with the first instalment on the “non-liquid” assets. So if a person died on 15th January, the Inheritance Tax on these assets would be due on 31st July.
In most cases, the Inheritance Tax account form can be prepared and submitted at the same time as the application for the Grant of Probate. When submitting the Inheritance Tax account to HMRC, a “probate summary” (form IHT421) will also need to be completed and submitted. This form provides a summary of the value of the Estate as well as the amount of Inheritance Tax being paid initially.
With Co-op’s Probate Complete Service, our Probate Specialists take care of calculating Inheritance Tax and liaising with HMRC on your behalf. We will also take responsibility for obtaining the Grant of Probate and selling or transferring property and other assets.
We can also pay all the costs of a Co-op Funeralcare funeral, providing the Estate owns sufficient assets which can be sold in due course to repay our costs.
How to Pay Inheritance Tax
The Inheritance Tax account form can be used to work out the amount of Inheritance Tax that needs to be paid by the 6 month deadline. Most banks will allow for money in a deceased person’s accounts to be released to HMRC before a Grant of Probate is issued, for the purposes of paying Inheritance Tax.
Once HMRC have received the Inheritance Tax account form along with the tax that is due, they will stamp and return the IHT421 as a receipt. This can take around four to six weeks to receive back.
Applying for Grant of Probate
The stamped IHT421 form can then be sent to the Probate Registry (Court) along with the other forms and documents that make up the application for the Grant of Probate. This tells the Court that the tax has been paid and received by HMRC, and that the Grant of Probate can now be issued.
The Probate Court will review the application, and assuming that everything is correct, this will be issued to the Executor or Administrator of the Estate in two to three weeks from the application being submitted.
Once the Grant of Probate has been issued, the non-liquid assets can sold or cashed, and the tax that is due on those assets can then be paid.
Distributing the Estate
HMRC will conduct a thorough review of the information that has been provided, which can take several months. Once this has been completed, they will issue the final Inheritance Tax calculation, detailing the amount of Inheritance Tax to be paid on both the liquid and non-liquid assets.
Once HMRC have fully reviewed the Inheritance Tax account, and all of the tax has been paid, they will issue a Clearance Certificate to confirm that they have no further enquiries to make. The rest of the Estate can then be distributed to the Beneficiaries.
For free initial advice and guidance call our Probate Advisors on 03306069584 or contact us online and we will help you.