Calculating and paying taxes can be tough, but it is also easy if done right. There are step-by-step guidelines by the government of the U.K. Valuing your own estate may be easier than valuing the estate of someone who’s died. Valuing someone else’s estate also involves more steps. Let’s get into these.
The first step is to value the estate if it hasn’t been valued yet. This will tell you how much inheritance tax is due if any.
- Contact the financial institutions that the deceased had property in. Find out the total debts and assets.
- Estimate the estate’s value. Calculate the value of the total estate that the deceased left behind and find out if there’s any inheritance tax to pay.
- Report the estate’s value within 6 months from the date of death.
You can pay inheritance tax on an estimated valuation of the total estate. If you pay more, the HMRC will refund the excess with interest. In case you have to pay the inheritance tax out from your own bank, you can be reimbursed by the estate after the valuation is complete.
Valuation of Estate for Inheritance Tax
The estate will attract an inheritance tax if the net value of the estate exceeds the nil-rate threshold set at £325,000. The inheritance tax is calculated at 40% of the estate amount exceeding the nil-rate-band.
The net value of the estate is calculated after subtracting the debts and expenses from the assets to be distributed among the beneficiaries.
In certain circumstances, it is possible to reduce the rate of inheritance tax to 36% if 10% or more of the estate is given to charity. You can save maximum tax with the help of trusted inheritance tax planners.
Reporting the estate to the U.K government if there’s no inheritance tax
You can report the value of the estate to Her Majesty’s Revenue and Customs (HMRC) online or by post, without a deadline.
This step is necessary to apply for probate. Probate is needed to transfer the estate’s property to the beneficiaries.
Reporting the estate to the U.K government if there’s inheritance tax
You’ll need to report the estate estimates when you apply for probate to pay inheritance tax on time (within 6 months of death). Use the estimate to work out the gross and net values for the probate.
Work out the estate’s gross value for inheritance tax and then subtract the following
- Assets owned by someone else
- Gifts made within 7 years before the date of death.
- Assets owned abroad
- Assets held in trust
Apply for Probate
The second step is applying for probate to transfer the estate to beneficiaries. Getting probate gives you the legal right to deal with the deceased’s estate including property, money, and possessions. Until you get probate you can’t make any financial plans or sell property from the estate.
Before applying for probate, you should know 2 things –
- If you need to apply for probate
- If you are eligible to apply.
You also need to evaluate the estate to see if there’s any inheritance tax to pay.
Is probate needed
Contact all the instittions that the deceased had associations with – bank accounts, mortgage lenders, employers, and landlords – because they may owe money or be owed money. These institutions will confirm if you need probate to handle the estate.
In certain circumstances, you may not need probate –
- If the person only had savings
- If they owned shares or money with others. (This amount automatically passes on to survivors unless mentioned otherwise)
- If they owned land or property with others. (This, too, passes automatically on to survivors)
Who can apply for probate?
Only a few people can apply for probate. This depends on whether there is a will or not.
In case there’s a will – The executors named in the will can apply.
In case a will is absent – The closest living relative can apply.
What you need to apply
You’ll need the death certificate or interim death certificate from the coroner. You’ll also need the original will.
Keeping Records after Valuing the Estate
Keeping Records after Valuing the Estate
- The will
- Inheritance tax forms and supporting documents (signed copies)
- Physical documents for the valuation of the estate
- Documents that show the transfer of property to civil partner/spouse
- Letters from the HM Revenue and Customs that confirm payment of inheritance tax
- Receipts of paid debts
- Receipts of expenses incurred to deal with the estate
- Written proof that all beneficiaries received their share of the estate
If the estate of someone hasn’t been valued before their death, then the beneficiaries are left to perform these duties. Before they can distribute the assets, they need to value the total estate, and pay debts.
Collect written documents that all debts and arrears are clear, calculate taxes, and notify the government timely.
If valuing the estate of someone who has passed away is daunting, you can leave your worries to estate and inheritance tax planners. Hiring professionals can help you save more tax and avert miscommunication among beneficiaries and families.