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Who is Eligible to Pay Inheritance Tax?

Who Has to Pay Inheritance Tax in the UK?

The amount you have to pay in inheritance tax depends on the value of your estate when you pass away. There is normally no inheritance tax to pay if:

  • Either the value of your estate is below £325,000
  • Or you leave everything over £325,000 to your spouse or civil partner

If neither is applicable, then there will be a 40% tax imposed on anything in your estate over £325,000.

Who Pays Inheritance Tax to the HMRC?

If you have left a will, the executor dealing with your estate when you die will be tasked with paying your inheritance tax bill. If you have not left a will, the administrator for your estate will distribute your estate and pay any inheritance tax owed on it. 

Your beneficiaries do not normally pay inheritance tax on anything they inherit from you. However, people you have given gifts to may have to pay inheritance tax on these, if you have given away more than £325,000 and have died within 7 years. 

How is Inheritance Tax Paid?

Inheritance tax can be paid from any funds remaining within the estate, or through the funds raised from the sale of any assets.

The majority of inheritance tax is paid through what is known as the Direct Payment Scheme (DPS). This means that if the person who has died had any money saved in a bank or buildings society account, the person handling the estate can request for all or some of the inheritance tax due to be paid directly from said account. 

Alternatively, the person who has died may leave money to pay inheritance tax. This is normally arranged through a whole of life insurance policy, which is operates until the policyholder’s death (providing the premiums are paid).

There may be inheritance tax owed on payments from a life insurance policy. However, if you write the policy in Trust, any tax should be avoided. By doing this you may also be able to avoid the often-lengthy probate process. 

Once any tax and debts have been paid, the executor can distribute the remaining parts of the estate in alignment with the deceased’s wishes. 

When do you have to pay Inheritance Tax?

Any inheritance tax due on an estate must be paid by the end of the sixth month after the person’s death. If it has not been paid by this time, interest will be accrued on the inheritance tax bill. 

Executors of the estate can elect to pay inheritance tax on certain assets, such as property, through regular instalments over the next ten years. However, there will still be interest charged on any outstanding tax. 

Moreover, if an asset is sold before all outstanding inheritance tax has been paid, the executors of the estate must ensure that all instalments, as well as any interest, has been paid. 

If there is likely to be inheritance tax charged on your estate, it is advisable that your executors pay some of this within the first six months after death, even if they haven’t finished valuing the estate. This is known as payment on account. 

Doing this will enable the estate to lower the amount of interest that it may be charged should it take longer to sell assets to pay off any outstanding debts and taxed. 

If the executor is paying tax from their own account, they will be able to claim it back from the deceased’s estate. HMRC will only reimburse the estate if it has overpaid inheritance tax when probate has been granted. 

 

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