In this article we look at which forms personal representatives (PRs) need to complete and who actually pays the tax.
To recap, under current rules, any part of the estate that falls within the available nil rate band (NRB), currently £325,000, is taxed at zero. Anything in excess of the NRB is taxed at 40%.
If any inheritance tax (IHT) is due, it is normally payable six months after the end of the month in which death occurred. For example, if death occurs in February 2017, any IHT due should be paid on or before 31 August 2017.
Any IHT liability must be paid before the grant of representation (known as confirmation in Scotland) can be obtained, so the PRs must ensure that there are sufficient funds available to meet this liability. Remember that no assets can be released from the estate until the grant is obtained.
Tax Forms
When applying for the grant, the PRs must complete and send the appropriate tax forms. Which tax forms they should complete depends on whether there is an IHT liability.
Where IHT is payable
Where IHT is not payable
Paying the IHT
Any IHT due must be paid by the end of the sixth month after the deceased’s death. In some cases, however, such as where the estate consists mainly of property, it is possible to arrange to pay the IHT in instalments over a period of up to 10 years.
Delaying payment can be costly because penalties and interest will be charged on the amount of IHT which should have been paid.
Before paying any IHT, the PRs need to obtain an IHT reference number from HMRC. The reference number, which can be applied for online via HMRC’s website or by post using IHT422, needs to be obtained at least three weeks before a payment is made.
Remember it is not possible to take money out of the estate, except for funeral expenses, until the grant is obtained. As the probate (confirmation) will not be granted until all dues and taxes, including IHT, have been paid or a payment plan agreed, you may be wondering how the PRs find the funds to meet any liability.
It may be that there are insufficient funds available in the estate to pay the IHT and PRs may have to pay the IHT from their own bank account or a joint bank account that they held with the deceased. If the PR pays it from their own bank account, they can claim the money back from the deceased’s estate or the beneficiaries once the grant has been obtained.
Written by Kim Jarvis, Canada Life
Kim Jarvis is Technical Manager with Canada Life’s ican Technical Services Team.
Canada Life offers a range of wealth management solutions, including retirement income planning, estate planning and investment solutions from a choice of jurisdictions, including the UK, Isle of Man and Republic of Ireland.