Do I need to pay Inheritance Tax?

What is Inheritance Tax?

Inheritance Tax (IHT) is a tax which is paid on a person’s estate after they have passed away. A person’s estate is made up of property, savings, investments and any other assets. This is calculated after deducting debts, including funeral costs, credit card and overdraft balances.

Are you administering an estate? Learn about IHT liability and payment options for a deceased person’s assets below.

What is the current Inheritance Tax threshold and rate?

Visit the Government website’s inheritance tax page here for details of the current IHT threshold and the rate payable. You can also contact HMRC’s IHT Helpline on 0300 123 1072 for further information.

How do I calculate Inheritance Tax?

Using HMRC’s online checker tool will help you figure out whether the estate is likely to pay any IHT, and will give you an approximate value of the estate: Online Inheritance Tax checker

You can also contact HMRC’s IHT Helpline, and they will be able to guide you through the calculation process.

Are there any tax reliefs available?

No IHT may be payable if the estate passes to specific individuals or to charity. Assets passing to a surviving spouse or civil partner (not a cohabiting partner) are exempt from IHT. Similarly, any assets passing to a charity are also exempt.

If the deceased owned a business or had an interest in a farm, there may be additional reliefs available. The HMRC IHT Helpline can help you to figure out which assets may be exempt from IHT.

If the deceased owned their own home, you may claim an additional IHT allowance. The home must pass to their children (or other direct descendants, including grandchildren) under their will or intestacy rules. This is known as the Residence Nil Rate Band, and you can find out more information here.

Who pays the Inheritance Tax bill?

The estate is liable for paying any IHT due. The person responsible for paying it will be the executor of the will. If no will exists, the person responsible will be the administrator.

You can pay the tax either by online bank transfer, cheque, or most commonly, through HMRC’s Direct Payment Scheme. This is a scheme set up with certain banks and building societies to allow them to pay monies directly to HMRC from one of the deceased’s accounts held with them.

Sometimes, a person will have set up an insurance policy to cover any expected IHT due from their estate. If this is the case, the insurer will let you know how much the policy was for and any other terms which you need to be aware of.

When do I need to pay IHT?

When paying IHT, you must do this before 6 months from the end of the month in which the person passed away.

If you need to pay IHT, you will need to apply to HMRC for a reference number. You will need to apply several weeks before you need to pay any IHT so that you can quote the reference when making payment.

If you make a late payment of IHT, HMRC can apply penalties and/or demand interest payments from you.