Inheritance Tax

Inheritance Tax is a tax on the estate of someone who has died, paid from the estate to HMRC before the beneficiaries receive their share. There is usually nothing to pay if the estate is worth less than £325,000, or if everything above that passes to a husband, wife, civil partner or charity; above the threshold the usual rate is 40%. Any tax due must normally be paid by the end of the sixth month after the death.

How the threshold can rise

At the time of writing, the tax-free threshold is £325,000, and three things can change what is owed. Leaving the main home to children or grandchildren can add £175,000, raising the allowance to £500,000 for an estate worth under £2 million. A threshold left unused when a husband, wife or civil partner died can be transferred to the one who survives them. And when at least 10% of the net estate goes to charity, the rate on the rest falls from 40% to 36%.

Who deals with it

The executor, or the administrator if there is no will, values the estate and pays any tax from it. A beneficiary does not pay Inheritance Tax on what they receive.

The deadlines

Ask HMRC for an Inheritance Tax reference number at least 3 weeks before you send the report. Tax payments have to start by the end of the sixth month after the death, or HMRC charges interest. When tax is owed, the value of the estate is reported on form IHT400 within 1 year. Once the estate has been reported, wait 20 working days before applying for probate.

Inheritance Tax is the same across the UK and HMRC runs it everywhere, so Scotland and Northern Ireland follow these rules too.