Probate and inheritance tax (IHT) can be highly complicated. Probate solicitors can help executors with obtaining probate and advise on whether IHT will be payable on the estate. It is important to pay the right amount of tax because if lay executors get their sums wrong, they can be held personally liable to the Inland Revenue.
Contact our team today to find out how we can help you.
Does inheritance tax need to be paid?
If someone dies and their assets and property (estate) is valued at more than £325,000 then inheritance tax may be payable. Checking if IHT is payable on an estate can be a bit of a minefield for lay executors because:
- The deceased may have given away assets within seven years of their death – the value of these gifts could change the size of the estate
- The deceased could have assets that do not form part of their estate for IHT purposes
- The deceased may not have to pay IHT unless their estate exceeds £650,000 if their late husband or wife did not use their IHT allowance when they passed away
- The residence nil band may increase the threshold for inheritance tax to be payable
The current IHT rate is 40% on anything above the £325,000 nil rate band or IHT threshold. The rate is reduced to 36% if 10% or more of the estate’s net value is gifted to charity.
Our probate solicitors can ensure the estate claims all the correct allowances and calculate the inheritance tax liability.
The death of a second spouse and a £650,000 allowance
Executors can struggle calculating the correct allowance before IHT becomes payable on an estate. The standard nil rate band allowance doubles to £650,000 if the deceased had a husband or wife who left their estate to the deceased using their spouse exemption. No IHT was payable on the death of the first spouse and so their £325,000 IHT nil band allowance is available for the estate of the second spouse to use.
Residence nil band
In addition to the standard £325,000 allowance, there is a further £175,000 tax free allowance when a home is to be inherited by children or grandchildren. If the home was jointly owned by the deceased the full £175,000 allowance will be apportioned according to the shared ownership.
Gifts left to charity
Gifts to charity can be IHT efficient because:
- If the estate is worth less than £1 million and left to charity there is no inheritance tax to pay
- If the estate is liable to pay IHT then the rate is reduced to 36% if 10% or more of the estate’s net value is gifted to charity
If the deceased gifted money or property to another person before they died, then IHT may be payable on the value of the gift. This depends on:
- The purpose of the gift – was it to a husband or wife or a wedding gift to a child or grandchild?
- The value of the gift
- The date of the gift – if the deceased survives seven years after the gift, then it is inheritance tax free. If death occurs within seven years the amount of IHT payable depends on the date of the gift
Paying IHT and the probate process
Before an executor can obtain probate, and gather in the estate and distribute it to the beneficiaries, they first need to check and see if IHT will be payable and complete the correct HMRC forms. Payment of IHT should take place within six months of the death. If funds cannot be raised to pay the IHT then payment can be made in instalments.