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Wills & Probate / Inheritance Tax
Inheritance Tax is charged on the value of someone’s assets when they die.
Most estates don't have to pay Inheritance Tax because they're valued at
less than the threshold (currently at least £325,000.00).
The tax is usually payable at 40% on the amount over this threshold
The rate is reduced to 36% per cent if more than 10% of the estate is given to charity.
Since October 2007, married couples and registered civil partners can effectively ‘inherit’ their partner’s threshold if they inherit their estate, giving them a ‘double allowance’.
From April 2017, the Government introduced an additional allowance when a residence (family home) is passed on death to a direct descendant. This will be:
£100,000 in 2017 to 2018
£125,000 in 2018 to 2019
£150,000 in 2019 to 2020
£175,000 in 2020 to 2021
It will then increase in line with Consumer Prices Index (CPI) from 2021 to 2022 onwards. Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.
Inheritance Tax is payable by different people in different circumstances. Typically, the executor or personal representative pays it using funds from the deceased's estate. The trustees are usually responsible for paying Inheritance Tax on assets in, or transferred into, a trust.
Valuing an estate to see if Inheritance Tax is due
To find out if Inheritance Tax is due on an estate, you must first value the estate. This means adding up the value of all the assets in the estate - such as a house, possessions, money and investments - and deducting any debts the deceased may have owed, including household bills and funeral expenses.
An estate also includes the deceased's share of any jointly owned assets and the value of any assets held in trust.
You should also review any gifts that the deceased may have made in their lifetime to see if they are exempt, and if they aren't exempt, include them in the overall value of the estate.
Deadline for paying Inheritance Tax
In most cases, you must pay Inheritance Tax within six months of the end of the month in which the deceased died. After this, interest will be charged on the amount outstanding. You can pay in yearly instalments over ten years if the value of the estate is tied up in property such as a house. The due dates are different if you're paying Inheritance Tax on a trust.
Inheritance Tax and probate forms
You have to fill out an Inheritance Tax form as part of the probate process even if no Inheritance Tax is due. Different forms are used depending on where the deceased lived, and whether there is any Inheritance Tax to pay. You must pay some or all of any Inheritance Tax due before you can get a grant of probate.
Fairbrother & Darlow can advise on all the issues surrounding Inheritance Tax, based on your own specific circumstances