It is widely known that each person has a “nil rate band” allowance for inheritance tax, but it is not quite as simple as you may think to determine who actually has to pay the tax due. It is possible to state in the Will who is to be liable for the IHT attached to specific assets (and this is strongly advisable if there is any prospect of the estate being liable for tax), but there are a huge number of Wills that are silent on the point.
This liability is limited to the amounts that the PR administers, and in practice means that an Executor should be very diligent in ensuring that the estate is fully administered before making distributions to beneficiaries.
There is a further category that often catches people unawares. Liability for IHT on any gift made by the deceased during the seven year period up to his death rests with the person receiving the gift. This can mean that if you receive a gift from a person and they then die within 7 years, HMRC could come back to the recipient to claw back IHT.
Having worked out who is liable for the tax, the typical question is what happens if these people refuse to pay the IHT? The PR or Executor becomes liable if no one else comes within the categories of liability for the tax or it is unpaid 12 months after the end of the month in which the person died. As above, the PR’s liability is limited to the value of the assets which he received or would have received but for his own neglect or default. There is no statutory right of recovery against the recipient of a lifetime gift.
In a nutshell, whilst there are several people who may be liable for inheritance tax, in practice this will always apply to the Executors or Personal Representatives, either from the outset or in the event that another person fails to pay their liability.
If you are named as an Executor under a Will, you should be aware that you can end up being personally liable for tax on it. Please speak with one of our probate team if you are in need of any assistance. We work with Executors from the outset, or can still help if you have started to deal with an estate but are finding it to be more difficult or time consuming than you expected.
If you found this article helpful we would recommend reading, ‘Inheritance Tax and the Family Home‘.Talk to our legal team
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