Inheritance Tax – You Only Have 6 Months to Pay
21 March 2018
When someone dies, it may be necessary to pay Inheritance Tax on any money, assets and property that they’ve left behind. If this is the case, the Inheritance Tax must be paid (or partially paid) by the end of the 6th month after the person has died; in order to avoid penalties.
Calculating the amount of Inheritance Tax due on an Estate can take time – everything the person owned will need to be located and valued and details of the Beneficiaries will be required. For this reason, it’s important not to put off dealing with a loved one’s Estate after they have died.
This can be easier said than done at a time of grief. Our Probate Solicitors can act on your behalf, taking the responsibility off your shoulders and ensuring that the Inheritance Tax deadline is met.
Who Has to Pay Inheritance Tax?
When Inheritance Tax is payable on an Estate, it is the Estate that is liable to pay it, not the Executor or Administrator. This being said, the Executor will usually be responsible for arranging the Inheritance Tax payment, and the administration of the Estate will cannot progress until the Inheritance Tax has been paid.
Calculating whether or not Inheritance Tax is payable on an Estate can be complicated, so it’s always best to get expert Probate advice.
The Inheritance Tax threshold is currently £325,000 for individuals. Generally anything above the threshold will be taxed at 40%. However, other exemptions and reliefs may apply which may mitigate any Inheritance Tax payable. For example, assets passing to a surviving spouse or to charities can pass free of Inheritance Tax.
Surviving spouses can also benefit from any unused portion of the Inheritance Tax threshold of their predeceased spouse. This means that the Inheritance Tax threshold of the survivor can increase up to £650,000. For more information see Are Inheritance Tax Rules Different if You’re Married?
There are also certain situations where the Inheritance Tax threshold is increased, such as when the deceased leaves their home to a direct descendant. For more information, see Residence Nil Rate Band Explained.
What Happens if I Miss the Deadline?
You have around 6 months from the date of the person’s death to pay the Inheritance Tax to HM Revenue & Customs. The Inheritance Tax deadline is at the end of the 6th month after the person died. For example, this means that if the person died on the 8th February, the deadline would be the end of the following August.
If this deadline is missed, then interest will be charged on the amount that is owed, meaning that the Inheritance Tax bill is going to keep increasing until it has been paid.
If you’re worried that you might be nearing the deadline, then it’s possible to make an early Inheritance Tax payment even if you haven’t yet calculated the full amount due. This is called making a Payment on Account and this can reduce the amount of interest that is charged on the outstanding amount. If you subsequently find that you have overpaid then the difference will be refunded by HMRC.
If no Inheritance Tax is payable on the Estate, then HM Revenue & Customs will need to be notified of this.
How to Pay Inheritance Tax
Ideally, any Inheritance Tax due will be paid from the deceased’s assets, eg bank account. However, if there are insufficient liquid assets to pay the Inheritance Tax then it can be paid with an Executor’s loan or from your own account by cheque, online bank transfer or at your bank or building society.
There are a number of options available when it comes to paying Inheritance Tax (IHT), including from the deceased’s bank account or from your own account by cheque, online bank transfer or at your bank or building society.
If it’s not possible for the Estate to pay the full amount in one payment, then there is the option to pay in annual instalments, depending on the assets in the Estate. This can be useful to allow certain assets time to sell, such as property.
Interest may be payable on these instalments. The first instalment will be due on the Inheritance Tax deadline, at the end of the 6th month after the date of death.
More details on paying Inheritance Tax in instalments can be found on gov.uk.
Get Help Meeting the Inheritance Tax Deadline
In order to meet the Inheritance Tax deadline, it’s important not to delay the administration of an Estate after a loved one has died. There is a significant amount of work involved in valuing all the assets in an Estate, calculating the Inheritance Tax owed and completing the correct IHT form. For some, this can be an unwanted burden at what is likely to be an already stressful time.
At Co-op Legal Services, our Probate Solicitors and specialists can take full responsibility for dealing with the calculation and payment of Inheritance Tax on your behalf. For more information see Probate Complete Service.