Not everybody has to pay Inheritance Tax. Inheritance Tax is due when a person’s possessions and property, also known as their estate is worth over £325,000 when they die. This is the ‘Inheritance Tax threshold’.
The rate of Inheritance Tax is 40% on anything that is above the threshold. If more than 10% is left to charity, then the rate may be reduced to 36%. Usually the executor for the person who has passed away pay the Inheritance Tax using the funds from the estate. Trustees are fully responsible for paying Inheritance Tax on trusts. This is a way of looking after assets for people.
If you have been left inheritance or a gift from somebody that has passed away, you only owe inheritance tax if their estate is more than £325,000 and it says in the will that you should pay inheritance tax, or the deceased’s estate cannot cover this.
Being the executor of an account means you must work out if inheritance tax is to be paid. The total value of everything in the estate must be added up, which also includes any gifts made in the 7 years before the person died and then take away any debts and bills, including any funeral expenses.
Inheritance tax must be paid within 6 months from the end of the month in which the person passed away. If not, then interest will occur. If you overpay inheritance tax, interest could be made. As some estates take over 6 months to deal with, an early payment on inheritance tax, which can be an estimate, will save you the interest of not paying any.
Leanne is a Chartered Tax Adviser, specializing in advising on UK tax matters but also including overseas tax as needed. Leanne is head of Taxation Services at EHL Solicitors in Leicester.
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