Inheritance tax is only levied on estates of certain sizes and according to HMRC, only four to five percent of estates in the UK pay IHT. For those it does affect though it can be a costly burden.
IHT is levied on estates valued more than £325,000 when they are being passed on, usually to family or friends.
The current IHT rate is 40 percent but this is only charged on the parts of the estate above the threshold.
So, as an example, if the estate of a person who has died is valued at £400,000, 40 percent will be deducted from £75,000.
There are ways to reduce this bill however which involve family set ups and who eventually receives the assets.
The rules about how an IHT bill is paid can be complicated but generally an executor will take charge of the admin, so long as there is a clear bill in place.
If there is no will, the administrator of the estate will be responsible for the bill.
According to the Money Advice Service however, in practice most IHT is paid though the Direct Payment Scheme (DPS).
This means that if the person who died had money in a bank (or building society), the person dealing with the estate can ask for all or some of the IHT bill to be paid directly from said account.
- Capital gains tax could be levied if the inheritors sell what they’ve been given (such as a property) for more money than what it was worth when the person died. The actual amount due will depend on the receivers income tax brackets
Due to the complicated nature of IHT, it is usually advisable to seek professional advice but this can be costly.
The government’s website has full details available on IHT rules and can provide guidance on how to handle estate matters.
Additionally, impartial guidance can be sought from the likes of the Money Advice Service and Citizens Advice.
It should be remembered that so long as an estate’s value is less than £325,000, no IHT will be due at all.