When someone dies, sorting complicated tax forms and paperwork might be the last thing you want to deal with. But inheritance tax (IHT) is a reality that many of us face.
Our guide is here to help make things a little easier for you and your loved ones. We’ll go through:
The estate is everything owned by the person who’s died, like money, property, possessions and shares. IHT is usually paid from the estate before the rest is shared between beneficiaries.
A beneficiary is a person (or entity) who’s legally entitled to get the value from any financial products of the person who’s died.
The nil rate band is the threshold at which inheritance tax is due. In the UK that’s currently £325,000, so you don’t pay anything up to this amount. Above that, you’ll pay 40% tax.
Married couples and civil partners can transfer any unused part of their nil rate band to their spouse or partner when they die. This is called the transferable nil rate band. This means couples can double the amount of their combined estate that’s exempt from IHT.
This includes property, money, possessions and shares. If the person who’s died gave any gifts in the last seven years of their life, these might be subject to IHT too.
After you calculate the value of the estate, some expenses are taken off:
If the estate is valued at £500,000, that’s £175,000 over the £325,000 nil-band threshold. 40% tax would be due on this, totalling £70,000.
If the person who’s died leaves 10% or more of their net estate to charity, inheritance tax is 36% instead.
You may also qualify for the residence nil rate band before IHT is due, if the person who died:
The residence nil rate band is currently £175,000. Using gov.uk you can work out and apply the residence nil rate band.
Someone dies and leaves to their children:
Total estate value: £490,000
Less nil rate residence band of £175,000 = £315,000
Less basic inheritance tax threshold of £315,000 = £0.
Therefore, no IHT is due. And the unused £10,000 out of the £325,000 basic inheritance tax threshold is available to transfer to the person’s partner.
The executor is the person named in the will to sort the estate and carry out the person’s wishes. If there’s no executor, or the named executor cannot or doesn’t want to act, the next of kin or beneficiaries can apply to be the administrator of the estate instead.
It’s important to make sure you have enough money to pay any IHT that’s due. You can pay in a few ways:
Inheritance tax can be complicated, but it’s important to make sure it’s done correctly. Our platform lets you manage the whole probate and estate administration process online, from start to finish.
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HM Courts and Tribunals Service probate fee for estates over £5,000 - +£273.00
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Third-party services, such as an asset and liability search - Optional