How do I work out the inheritance tax due on an estate?
If the value of the deceased’s taxable estate, together with any gifts they made within seven years of death, is more than the nil rate band (and the residence nil rate band, if applicable), IHT may be due at 40%. There is information on how to value an estate for IHT in the section ‘how do I assess an estate for inheritance tax purposes?’.
Note – you cannot obtain probate (confirmation in Scotland) until you have paid any IHT due.
How do I work out the IHT when someone dies?
If the value of the deceased’s taxable estate and any gifts they made within seven years of death is more than the nil rate band (and the residence nil rate band if applicable) IHT may be due at 40%. There is information on how to value the estate in the section ‘how do I assess an estate for inheritance tax purposes?’.
Note that if any transfers or gifts are exempt (for example to a spouse or civil partner domiciled in the UK), they will not be included in the value for the purposes of working out whether any IHT is due.
GOV.UK gives a general guide to dealing with the estate of a deceased person. We are not able to provide detailed guidance on IHT calculations, as they can be complicated. We therefore give only limited guidance and direct you to more sources of information and help below.
The following example illustrates how inheritance tax is calculated on death in a straightforward case.
Example – Olive
Olive dies on 1 May 2018, leaving an estate worth £500,000. She has made no lifetime gifts in the past seven years outside her annual exemption. She leaves her estate in its entirety to her nephews and nieces.
|Total estate on death||500,000|
|Less Nil rate band||(325,000)|
|Balance of taxable estate||175,000|
|Tax at 40% on £175,000||70,000|
Now assume that Olive has left £100,000 to her local hospital. Tax is now calculated as follows:
|Total estate on death||500,000|
|Less Tax exempt gift to charity||100,000|
|Nil rate band||325,000||(425,000)|
|Balance of taxable estate||75,000|
|Tax at 36% on £75,000||£27,000|
What forms do I need to complete?
The forms are different, depending on whether any IHT is due or not. Personal representatives need not submit a full and detailed account of an estate to HMRC (form IHT400) if the estate is a low value or ‘excepted estate’ - basically an estate on which no IHT is payable because of the spousal/charitable exemptions.
Instead they can complete the shorter and simpler IHT205 form.
GOV.UK provides a guide to which IHT forms to complete depending on the circumstances.
In dealing with IHT forms, the personal representative may well find it advisable to seek professional help – see 'where can I find more help and information?' below.
How and when do I pay IHT, if any is due?
The executor must normally pay any IHT due within six months of the end of the month in which the death occurred. For example, if Molly dies on 15 June 2018, her executor must pay any IHT due on or before 31 December 2018. IHT must be paid, or an arrangement put in place to pay it before probate or confirmation can be granted.
You should note that in some cases, such as where the estate consists mainly of property, it is possible to arrange to pay the IHT in instalments over a period of up to 10 years – however interest will usually be payable.
Guidance on paying IHT is available on GOV.UK.
What other taxes might be payable by the estate?
You should bear in mind that even if the estate is not liable for IHT, tax may still be payable during the period of administration of the estate on any income or capital gains. See ‘How is an estate taxed during administration?’ for more information.
Where can I find more help and information?
You can find a collection of IHT forms and guidance notes on GOV.UK.
There is more information on paying IHT in the 'Guide to completing your Inheritance Tax account (IHT400 notes)' on the GOV.UK website.
HMRC’s Inheritance Tax Manual contains more information on IHT administration.
You can contact HMRC’s probate and IHT helpline with questions – the contact details are on the GOV.UK website.
In dealing with an estate, the personal representative may well find it advisable to seek professional help from a:
- solicitor – you can find a solicitor on the Law Society website;
- tax adviser – you can find a tax adviser on the Chartered Institute of Taxation website; or
- trust and estate practitioner – you can find a practitioner on the Society of Trust and Estate Practitioners website.
There are different sources of help if you need a solicitor in Scotland – use the Law Society of Scotland website, or a solicitor in Northern Ireland – use the Law Society of Northern Ireland website.