When must inheritance tax be paid?

Inheritance tax must be paid on the estate of a deceased person when the net value of the estate is in excess of £325,000. It is the responsibility of the executors of the will to present financial information to HMRC, giving the net value of the estate so that any inheritance tax payable can be calculated. It is also the responsibility of the executor to actually pay any tax due.

If no will has been left, or one has been written but has failed to name an executor, an administrator must be nominated. They will then have the same responsibilities as an executor. Those responsibilities include obtaining probate, submitting financial information about the estate to HMRC, paying any tax due on the estate and distributing any legacies to beneficiaries named in the will. You can still act as administrator or executor even if you have been named a as beneficiary in the will.

So that HMRC can assess whether any inheritance tax should be paid, the executor or administrator must report the net value of the estate. This is worked out by first identifying and valuing all the assets of the estate, which may include property, vehicles, cash in banks or building societies and personal possessions like antiques, art or jewellery.

In the case of property, you should get an estate agent or chartered surveyor to give a valuation while any other items that are worth more than £500 should be professionally valued. The value you must give is the market value at the time of death and it is important that your valuations are accurate. If they are too high, then you may end up paying more tax than necessary. If they are too low, HMRC is likely to challenge them and this can lead to considerable delays in obtaining probate, distributing inheritances and finally winding up the affairs of the estate.

Once you know the total of the assets, next work out all the payments that must be made from the estate. These may include bank loans, credit card balances and any bills from utilities, phone companies or tradesmen. HMRC also allow you to include the costs of the funeral, but not the costs of engaging solicitors, accountants or professional valuers in dealing with the estate. These costs can be claimed from the estate but not deducted from the valuation you give to HMRC.

Finally, subtract the liabilities from the assets to get the figure HMRC will use to assess any tax that is due. Tax is paid at 40% of the net value of the estate less £325,000, and must be paid by the end of the sixth month after death.

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