HMRC and Probate

When someone dies and they have left a properly constituted will, the will should have named an executor who will be responsible for getting probate and for dealing with HMRC on matters of inheritance tax. If there is no will, or no executor has been named, then someone, usually a close relative, will take on the role of administrator and he or she will have the same responsibilities as the executor.

To get legal authority to deal with bodies like banks, HMRC and estate agents, the executor or administrator must apply to their local Probate Registry for a Grant of Representation in the case of an executor or Letters of Administration in the case of an administrator. The executor or administrator must also fill in a form for HMRC which details the assets and liabilities of the deceased person’s estate and gives a net value for the estate.

Inheritance tax will be payable on estates with a net value of £325,000 or more. To calculate the value of the estate you need to include all of the assets such as property, stocks and shares, vehicles and personal possessions like artworks, jewellery and antiques. The advice from HMRC is that you should get any item with a value of more than £500 assessed by a professional. It is important that you submit a complete assessment of the worth of an estate as HMRC can reject your valuation if they have doubts about its accuracy.

From the sum of the assets you need to subtract any debts such as bank loans, outstanding bills or mortgages on property that is to be sold. You may also subtract funeral costs. If you employ a solicitor to deal with probate you may pay the costs from the estate, but you cannot set the costs against the estate’s assets for the purposes of calculating inheritance tax liability.

Even on estates worth more than £325,000, you will not be required to pay inheritance tax if all the assets were owned jointly, such as joint bank accounts and jointly owned property where the surviving owner is the spouse or civil partner. In that case, they can inherit the whole estate without tax.

The executor or administrator is responsible for payment of any tax due, and usually some of the tax due must be paid before the Grant of Representation or the Letters of administration are issued. The rate of tax on the value of the estate above £325,000 is 40% although this can be reduced to 36% if at least 10% of the value of the estate is bequeathed to charity.

The rate of Inheritance Tax is 40% on anything above the threshold. The rate may be reduced to 36% if 10% or more of the estate is left to charity.

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