Inheritance tax is payable on an estate when a person dies. Only estates which are valued over £325000 threshold value (in 2011-2012) are taxed. Tax is payable at 40% on the estate over the threshold value. Sometimes, it is payable on gifts or trusts made during a person’s lifetime.
FAQ (valid for 2011-2012 rates)
Increased threshold in some cases
Married couples and registered civil partners can enjoy a higher threshold when one partner dies. The increased threshold is £650000. Their executors must first transfer the living spouse’s/partner’s unused Inheritance tax threshold (£325000) to the dead spouse/partner.
Who pays inheritance tax?
Normally, the executor, personal representative or administrator pays Inheritance taxes on assets which are not held in trust. If the estate is transferred to a trust, then the trustees are responsible for paying the tax. If the executors or trustees cannot pay the inheritance tax, a beneficiary (meaning a person who has received gifts from the deceased or benefits in any way from the estate), pays the inheritance tax.
How is the estate value calculated?
- Add all assets (property, possessions, cash, investments)
- Add assets held jointly or in trust (to the extent of the deceased’s share)
- Add gifts made by the deceased in his lifetime, unless they are exempted
- Deduct all liabilities, including household and funeral expenses
Exemptions and reliefs
Which exemptions and reliefs are available? Inheritance tax is not payable if the estate is left to a spouse or civil partner who has a permanent home in the UK. No tax is payable on gifts made to the same people mentioned above. Any estate left or gift made to a qualified charity is exempted. If the deceased has made a gift to someone, and has survived for seven years after making the gift, then these make for tax free gifts. Gifts up to £3000 annually are exempted. Small gifts up to £250, whenever made, are exempted. Gifts made to a person getting married or entering into a civil partnership are exempted up to a certain amount. Business, woodlands, national heritage property and farms are exempted to some extent. A tax accountant can help you dig deeper. What is the deadline for paying the tax? Within six months from the end of the month in which the deceased died. If the deadline is not met, interest is charged on the outstanding tax. If the estate value is locked in immovable assets, then inheritance tax is spread over ten years. Do inheritance tax forms have to be filled in even if no tax is payable? Yes. Filling up the inheritance tax form is part of the probate process. Get your hands on the required inheritance tax forms on Hmrc.gov.uk