HMRC and Inheritance Tax

After a death, HMRC must be informed and the executor of the deceased person’s estate is responsible for declaring the net value of the estate and ensuring that any inheritance tax due is paid. The executor is named in the will and as well as dealing with HMRC he or she is responsible for getting probate from the Probate Registry. Probate is the legal authority which allows the executor to deal with all the affairs of the estate, including paying out any inheritances to beneficiaries named in the will. The executor can be one of the beneficiaries.

If there is no will, if the will fails to name an executor, or the executor named declines to take the role on, an administrator must be named. Usually, the administrator will be a close relative and he or she will have the same responsibilities as an executor.

Many administrators and executors choose to employ the services of a solicitor or an accountant to deal with getting probate and with HMRC, especially if the estate has a high net worth or affairs that are complicated. Even so, the ultimate legal responsibility for the affairs of the estate lies with the executor or administrator.

In fact, only a minority of estates will be due to pay inheritance tax as it only applies to those estates with a net value of more than £325,000. Nevertheless, HMRC will still insist that the value of an estate is reported to them even when it is clear no inheritance tax is due. Estates with a value of less than £5,000 will not usually have report to HMRC and nor will estates where all the assets have been jointly owned by the deceased and there is a surviving spouse or civil partner who has been named in the will.

It is crucial that the value of an estate is calculated as accurately as possible. In the case of property, you should get an estate agent or a surveyor to give a value. For other possessions such as vehicles, jewellery, artworks, antiques and collectibles, you should get someone who is professionally competent to give a valuation. HMRC advises that you should have any single item with a value of more than £500 professionally valued.

Once you have the worth of all the assets, you should calculate the total of debts that are due from the estate. These may include mortgages, bank loans, credit cards and bills for professional services. You can also count the costs of the funeral as a liability. You cannot include the fees of professionals dealing with the affairs of the estate, although you can charge them to the estate.

If the estate has a net value of more than £325,000, inheritance tax of 40% will be due on everything over that threshold. The tax can be reduced to 36% if at least 10% of the value of the whole estate is to go to charity.

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