When a person dies, inheritance tax (IHT) may be payable. The amount of IHT depends on the value of the estate, the identity of the beneficiaries, and the tax-free allowances available.
If the deceased made gifts before they died, the value of those gifts may be relevant. But who is responsible for paying the IHT, when is it payable, and how is it paid?
Dealing with the estate
If someone dies with a valid Will, then the executors named in the Will are responsible for administering the estate. If the deceased did not leave a Will, then the beneficiaries on intestacy can also act as administrators.
The executors or administrators are responsible for valuing the estate, and for calculating, reporting, and arranging payment of the IHT.
Who pays IHT?
IHT payable on the deceased person’s estate is not payable by the executors, administrators, or beneficiaries personally; it is payable from the estate funds.
If the deceased has made generous lifetime gifts exceeding their tax-free allowance, those gifts may become subject to IHT when the deceased dies. The IHT payable on those gifts generally needs to be funded by the recipients of the gifts, unless the deceased specified otherwise in their Will.
When does IHT need to be paid?
IHT due on the value of the deceased’s liquid assets (savings and investments) must be paid within six months of the end of the month of death. So, if a person who owns both liquid assets and real property (houses and flats) with a taxable estate dies on 11 April, the part of the IHT due on the value of their cash assets should be paid by 31 October in the same year. From 1 November on, interest will begin to accrue on the tax due. Interest on unpaid IHT is currently set at 7.75%.
IHT due on the value of unsold real property can be paid over ten annual instalments. The first of these instalments is due at the same time as the IHT on the liquid assets is due. The next instalment must be paid by the first anniversary of that date, and so on. If the property is sold at any point during those ten years, the outstanding IHT and interest must be paid straight away.
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