"If the value of the estate is more than £325,000 tax will normally need to be paid at 40% on the part of the estate that is above that threshold (this may be reduced to 36% if at least 10% of the net value has been left to a charity)."
What is Inheritance Tax and how much does it cost?
Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who has died.
There is normally no tax to pay if:
- The value of the estate is below £325,000. This is known as the nil-rate band.
- Everything over £325,000 is left to a spouse, civil partner, charity or a community amateur sports club
If the value of the estate is more than £325,000 tax will normally need to be paid at 40% on the part of the estate that is above that threshold (this may be reduced to 36% if at least 10% of the net value has been left to a charity).
However, transfers between married couples or civil partners are not usually subject to inheritance tax. If the first partner to die leaves their entire estate to the other, no tax will be payable. In addition, it is also likely that none of the deceased’s nil-rate band will be used and the partner can add the unused balance to their own, effectively doubling their threshold.
Further, if a main residence is left to direct descendants (e.g. children or grandchildren) an additional £175,000 (known as the residence nil rate band) is added to the tax free allowance, increasing this to £500,000 – £325,000 + £175,000.
This additional £175,000 only applies if the estate is worth less than £2 million. On estates worth more than £2 million the main residence allowance will decrease by £1 for every £2 above the £2 million that the deceased’s estate is worth.
When to pay Inheritance Tax?
Inheritance Tax should be paid 6 months from the end of the month in which the person died and will normally need to be paid before probate is granted.
If there is sufficient money in the deceased’s bank account this can normally be used to pay the tax. However, if the liquid assets in the estate are insufficient to pay the Inheritance Tax alternative funding solutions are available. This includes the Ampla Finance Executor Loan.
The executor or administrator may be able to pay the tax instalments over ten years, but the outstanding amount of tax will still get charged interest. If they pay the tax themselves they can claim it back from the estate.
Who pays the Inheritance Tax?
Inheritance Tax is paid by the executor of the will or, if there is no will, the administrator of the estate. If a solicitor is involved in dealing with the estate they can deal with the payment.
Beneficiaries of an estate do not normally pay tax on their inheritance.