How do I work out the inheritance tax due on an estate?
If the value of the deceased’s 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 will 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?’.
How do I work out the IHT when someone dies?
If the value of the deceased’s 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 will 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 – you must ensure that there are sufficient funds to pay any inhIHT due within the deadline, as you cannot obtain probate (confirmation in Scotland) until you have paid the IHT.
GOV.UK gives a general guide to dealing with the estate of a deceased person, including completing IHT forms. We are not able to provide detailed guidance on IHT, as it can be complicated and much depends on what kind of assets the deceased had and their value. 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|
The charitable gift is more than 10% of the value of the taxable estate above the nil-rate band, so the rate of tax to be applied is 36% (see GOV.UK’s inheritance tax reduced rate calculator).
|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. GOV.UK provides a guide to which IHT forms to complete depending on the circumstances, so we do not repeat this here.
In dealing with IHT forms and the possible complications mentioned above, 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 (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 – interest will usually be payable too) before probate or confirmation can be granted.
Guidance on paying IHT is available on GOV.UK.
Once probate has been granted the executor can round up all the assets, pay off any debts and distribute the estate in accordance with the will or the rules of intestacy.
You may wish to seek professional help from a tax adviser if it gets complicated. Any costs involved will be borne by the estate – see ‘where can I find more help and information?’ below.
What other taxes might be payable by the estate?
You should bear in mind that even if the estate is not liable for IHT, nevertheless tax is still payable during the period of administration of the estate on any income or capital gains. See ‘How is an estate taxed during administration?’.
If you find the administration difficult, you are entitled to seek professional help which can be paid for out of the estate – see below.
Where can I find more help and information?
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 Insitute 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.
You can contact HMRC’s probate and IHT helpline – the contact details are on the GOV.UK website.
If you are an executor, you may find the following sources of information helpful when dealing with an estate:
- The Courts and Tribunals Service of Northern Ireland's guide, 'Dealing with a deceased person's estate';
- There is a guide on IHT on the GOV.UK website;
- HMRC also provide guidance on the GOV.UK website on how to find the correct forms for probate and IHT.