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What inheritance tax needs to be paid when someone dies?

When someone dies, the general rule of thumb is that their estate is passed on to their chosen beneficiaries. A Will should name the beneficiaries and should also name an Executor – a person who the deceased has entrusted to ensure that their wishes are carried out.

In the case of no Will, the entitled beneficiaries must be established in accordance with the rules of intestacy. This is usually undertaken by an administrator.

Either role has responsibility for ensuring that all debts and taxes due are paid before any money and assets are distributed from the estate. This is a legal requirement and if not done properly, the punishments can be severe. That’s why it’s important to appoint a professional to ensure that this has all been done properly.

What is Inheritance Tax and who pays it?

Inheritance Tax is a tax on the deceased’s estate after they die. Inheritance tax is essentially a tax that is incurred when an estate is passed from one person to another. Like any other tax, it is collected by HMRC and there are requirements governing its payment and penalties for failure to comply. 

How much Inheritance Tax do I have to pay?

An inherited estate value has a threshold below which no Inheritance Tax is payable. This is currently £325k, so if the deceased’s estate is valued at less than this, you will not need to pay any Inheritance Tax. This does not apply when the estate is of a married couple or civil partners and one of the couple passes away. If they have left their entire estate to the surviving spouse or partner, they will not need to pay any Inheritance Tax unless the value of the estate exceeds £650k when the second person dies. 

Inheritance Tax is taxed at a rate of 40% on the net value of the estate beyond the threshold. The net value of the estate is calculated by working out the gross value – the total worth of all assets – and then deducting any debts, such as mortgages, loans and credit card bills. If there are more complex issues surrounding the value of the estate, you may benefit from professional help.

Who calculates Inheritance Tax?

Normally, the Executor or Administrator calculates the value of the estate and to identify any applicable deductions. With a small estate, this is usually straightforward, but even in this case, different assets can soon mount up and can quickly become complex.  A professional Administrator will be able to take care of all of this for you. 

When does Inheritance Tax have to be paid?

A Grant of Probate will not be given until confirmation is received from HMRC that all due Inheritance Tax has been paid. So therefore, HMRC must be paid before anything else is settled. Inheritance Tax should be paid within six months of death. If you do not pay it within this time, HMRC will start to charge interest on the overdue sum. Any additional fees will come off the estate, which could reflect poorly on you if there are other beneficiaries.

What happens if I don’t pay or don’t pay the right amount?

As the Executor or Administrator, you are responsible for accurately calculating and declaring any taxes payable from the estate. This is a legal responsibility and not to be taken lightly. If you pay out the wrong amount to beneficiaries, they are under no obligation to return any of the monies.

At Complete Estate Protection, we can guide you through Inheritance Tax and also help you with the intricacies of your Will to ensure that the process is made as simple as possible. For more information, please visit or call  01642 493101.