Inheritance Tax is due when a person’s estate (their property and possessions) is worth more than £325,000 when they die. This is called the ‘Inheritance Tax threshold’.
How much Inheritance Tax is paid
The rate of Inheritance Tax is 40% on anything above the threshold. The rate may be reduced to 36% if more than 10% of the estate is left to charity.
You can see a list of Inheritance Tax thresholds on the HM Revenue and Customs (HMRC) website.
Who pays Inheritance Tax
Usually the executor or personal representative for the person who has died pays Inheritance Tax using the funds from the estate.
Trustees are responsible for paying Inheritance Tax on trusts, which are a way of looking after assets (money, investments, land or buildings) for people. The trustee is the person who looks after the trust.
If you’ve got an inheritance or a gift from someone who has died you only owe Inheritance Tax if their estate is more than £325,000 and either:
- it says in the will that you should pay Inheritance Tax
- the deceased’s estate can’t pay it
Working out if Inheritance Tax is due on an estate
If you’re the executor of an estate you need to work out if you need to pay Inheritance Tax.
To see if it’s due, you:
- add up the value of everything in the estate (including gifts made in the 7 years before the person died)
- take away any debts, like bills and funeral expenses
There’s detailed information to help you if you’re valuing the estate of someone who’s died.
Deadline for paying Inheritance Tax
You usually have to pay Inheritance Tax within 6 months from the end of the month in which the person died - after this, you have to pay interest.
There’s more information on Inheritance Tax deadlines on the HMRC website.
Whether or not you have to pay Inheritance Tax on the estate, you’ll still have to fill out certain forms.
Paying before you know what’s due (‘payments on account’)
Sometimes it can take more than 6 months to deal with the deceased’s details and start paying Inheritance Tax.
If you make an early payment as an estimate, you won’t have to pay interest on the amount you pay. You may also earn some interest if you end up overpaying.