How to Pay Inheritance Tax – Let’s Start with the Basics.
What is Inheritance Tax?
Inheritance tax (IHT) is a tax on the estate of someone who has died. The amount that you pay will depend on the total value of their estate, so let us help you walk through how to pay inheritance tax and everything that you need to know.
How Much Inheritance Tax Do You Have to Pay?
How much inheritance tax you have to pay depends. IHT is taxed at 40% of anything over £325,000, which is the threshold for the tax.
That figure can be higher through the marriage allowance and other allowances, so it’s worth exploring all of your options.
The figure is based on all of the deceased’s assets that haven’t been passed to their spouse or civil partner such as property, investments, savings, vehicles, life insurance policies, and any physical assets that they own.
There will be no inheritance tax (IHT) to pay if:
- The total value of the estate is less than £325,000
- The deceased leaves anything over and above the £325,000 Inheritance Tax Threshold to their spouse, civil partner, or charity
In the remainder of this article we will explore when you have to start paying inheritance tax and how you pay it.
When Do You Pay Inheritance Tax?
Inheritance must be paid by the end of the 6th month after the person’s death.
If it’s not paid by this point, HMRC will begin charging interest on the total amount of IHT owed.
However, you can choose to pay tax on specific assets such as property via instalments but if you do this the remaining amount will still be subject to interest charges.
Paying Inheritance Tax
One of the most important parts of the entire process is gaining a valuation on all of the deceased’s assets and liabilities so you know what you’re working with and how much IHT you’ll be liable for.
The executor of the will should handle this with the help of legal experts but there’s a lot to consider, including:
- The value of the assets
- How the assets are owned
- The value of any debts and liabilities
- The value of any gifts made in the 7 years before their death
- The value of any charitable donations made
- The total value of assets in different parts of the estate, if relevant
If an asset is sold before all IHT is paid, the executor of the will must ensure that all instalments and interest are paid on any outstanding monies owed to HMRC at that point.
Paying Inheritance Tax On Property
Paying inheritance tax on property works in the same way that any other asset does.
Property is likely to be the most significant asset in any estate barring any particularly large investments or savings – but it’s rare for those to exceed the value of properties owned.
Given that the average house price in the UK is now more than £280,000, there’s a strong likelihood that anyone who owns a property will be liable for IHT.
As such, it’s worth preparing with a clear and up-to-date will as well as other later life planning such as exploring the potential use of the 7-year rule for gifting and creating trusts.
Do You Have To Pay Inheritance Tax Before Probate?
The simple answer, is, no you do not have to pay inheritance tax before probate, but there are certain benefits in doing this.
It might seem counterintuitive to pay any inheritance tax before probate has been granted but it’s actually quite common.
It’s known as payment on account and by paying some of the IHT within 6 months of your loved one’s death, you can reduce the amount of interest that’s charged on the IHT owed.
As we all know, interest on liabilities can compound and make it take much longer to pay off the debt, so paying a sum within the first 6 months can be helpful if it’s possible to do so.
The good news is that if you pay the tax from your personal account then you’ll be able to claim it back from the estate once probate is granted.
If any IHT has been overpaid, HMRC will refund the amount once probate is granted too.
Can You Pay Inheritance Tax in Installments?
Yes, you can pay inheritance tax in installments. You can arrange an instalment plan with HMRC to pay inheritance tax over a maximum of 10 years and this can be a useful way to ensure that significant sums are not forked out immediately from the estate.
If you’re planning on doing this, it is wise to speak to HMRC sooner rather than later to arrange a payment plan and work out what your costs will be and what’s needed to cover it from the estate.
Inheritance Tax Solicitors Near Me
At Solicitors Near Me, we’re here to help you through the process of inheritance tax, probate and dealing with the estate.
We know it can be a difficult time emotionally and the stress of dealing with complex tax rules can be overwhelming.
The good news is that we connect you with expert, hand-picked solicitors to help make the process as simple and clear-cut as possible.
To find a solicitor near you, simply click the button below, enter a few details and we will soon connect you with an expert inheritance tax solicitor for FREE.