When a family member, close friend or business associate passes away, it is a trying time for all concerned. Adding more weight to the grieving of a lost one, is when you must take care of the personal affairs of the deceased or resolve the administration of their estate. In some cases, an Inheritance Tax may apply and could be significant depending on the size of the estate.
In the United Kingdom, Inheritance Tax (IHT) must be paid if the estate of a deceased person is worth more than £325,000 at the time of their death. This figure of £325,000 is known as the Inheritance Tax Threshold.
The rate of IHT is 40% on any value above the £325,000 threshold. The exception to this rate is if more than 10% of the estate is left to charity, in which case the rate of IHT is reduced to 36%.
The IHT is generally paid out by either the executor of the will of the administrator of the estate, and the funds for this payment are drawn from the estate. The executor/administrator has six months after the death of the deceased to pay the IHT, or if payment is not made, the estate may start accruing interest payments. However, in the case where an asset of the estate may take some time to sell (e.g. a property), the IHT can be paid in instalments over a number of years.
Where a deceased person leaves behind a trust, it is the responsibility of other trustees to pay IHT. However the deadlines for paying IHT on a trust vary from the payments for the rest of the estate.
If someone receives an inheritance, they don?t generally have to pay IHT on that amount. However, if the inheritance was provided to you as a gift by someone while they were alive, you may be obligated to pay IHT on that amount.
For more information regarding IHT, visit the www.gov.uk/inheritance-tax/overview website or consult a probate lawyer for more specific information.