Inheritance Tax is something that is paid if the total value of a deceased person’s estate and applicable gifts works out at in excess of £325,000. That is the threshold at the time of writing, but it may change at any time.
The executor of the will, or, in some cases the administrator of the estate, is the person who pays inheritance tax. The executor is the person who was named in the deceased’s will as being responsible for working out what to do with the estate.
If a person dies and has not left a will, then the person who deals with the estate is known as an administrator.
If you were named as someone who was to receive an inheritance, then this will be paid out after the inheritance tax liability has been taken into account.
There may be additional income tax to pay on inheritance if it is something such as share dividends or income from rentals.
There are also some rules regarding paying inheritance tax on gifts that the deceased made when they were alive. For this reason, it is worth speaking to an accountant or lawyer that understands the rules regarding tax and inheritance if you are dealing with large sums of money.
The current rate that has been set is 40% on all assets over the £325,000 threshold. It is possible to reduce that rate to 36% if 10% or more of the estate is donated to charity.
The tax is due within six months of the date of death, although if the estate included assets that are difficult to sell then there may be an extension granted so that you can pay the tax in instalments over a period of ten years.
There are some exemptions and some options for relief when paying inheritance tax. Assets that are below the current threshold of £325,000 are exempt from inheritance tax, as are assets that were left to a civil partner or spouse.
There are some options for relief for assets in the form of certain kinds of business, as well as for national heritage, and for agricultural assets. When it comes to homes, there are specific rules that relate to how they can be passed on , and who to.
The inheritance tax rules were updated in 2015, and the new rules took effect in April 2017, The new rules allow individuals to pass on £500,000 free from inheritance tax, and married couples get an allowance that is double that – so it is possible to pass on up to £1 million in property to your child if you are a part of a married couple.
The personal threshold is still £325,000 though, and the ‘family home’ allowance starts at an extra £100,000 and increases by £25,000 every year up to 2020. This allowance is only for the main residence of a couple, and the property must be passed on to a child or grandchild. It cannot be used to avoid paying tax on other property.