Some Basic Principles of Inheritance Tax (IHT) Law

Inheritance Tax (IHT) is a complex area but here are some basic principles that anyone considering inheritance issues should be aware of:

  • IHT cannot be avoided.
  • IHT has to be paid within 6 months after death.
  • IHT can be paid by instalments – the first one due 6 months after with the second instalment due 12 months after that.
  • Interest is added to the Inheritance Tax from the date it is due.
  • Penalty charges become payable if a full and accurate account is not received by the HMRC with 12 months of death. This will be in addition to the interest added
  • IHT does not have to be paid unless the estate totals over £325,000; known as the nil rate band.
  • Any amount over this shall be charged at 40%.
  • If the deceased left a surviving spouse who receives all of the estate, there is no IHT to pay, as transfers between spouses are IHT exempt.
  • When the surviving spouse dies, their estate shall benefit from 100% of the unused nil rate band in the estate of first spouse to die. Therefore, IHT is only paid on an estate worth over £650,000, as at today’s (February 2013’s) rates.
  • The tax exempt allowance will depend on the year in which the second spouse dies. The nil rate band allowance applicable in that year shall be used, rather than the allowance in place when the first spouse died.
  • A Grant of Probate cannot be taken out until the full Inheritance Tax liability has been paid. If the assets cannot cover this, banks, building societies, can provide a loan, subject to their terms.

As well as handling inheritance and IHT disputes we also provide a full estate administration service. So if you are struggling with probate, IHT or any other aspect of estate administration then give us a call on freephone 0808 139 1599