Inheritance Tax - what is it and how is it calculated?

Inheritance Tax - what is it and how is it calculated?

Inheritance tax is a percentage rate fee paid on the estate of the deceased.

Who pays the inheritance tax?

The executor of the estate is responsible for paying the tax. Once you have the approval of the probate, the executor can use money from the estate to pay it. In the case of trusts, it is the trustees who must make the due payment.

What is the inheritance tax rate?

Estates with a value in excess of £325,000 pay a rate of 40-percent.  This is only charged on the value of the estate above this threshold.

You will not pay inheritance tax if you leave everything to your spouse or civil partner.

The tax rate drops to 36-percent if you donate a minimum of 10-percent of the estate to charity.

You can raise your threshold rate to £450,000 by giving away your home to your natural, adopted, step, or foster child or children.

Business relief allows some assets to pay a reduced rate or sometimes no tax. Learn more here.

Agricultural relief may be available if the estate includes woodlands or a farm. Find out more here.

Tax may be payable on gifts exceeding £325,000 if you die within 7-years of making them. Learn more here.

When must I pay?

The tax is payable within six months of the death of the estate holder. If it is not paid within this time there will be interest charges. If the estate has many assets that may require more time to dispose of, you can pay the tax in instalments over a period of time.

How do I pay?

If the estate has a value below the £350,000 threshold you will not need to pay. You will, however, have to file the relevant form. You can find it here.

If the estate is worth more than this threshold you will have to pay inheritance tax. You will need to fill out this form

Present these forms at the same time as you request probate.

You will receive an Inheritance Tax reference number.  This will allow you to make payments using your bank or building society. You can also post a cheque. If you are the personal representative of the deceased's bank account you can set up a Direct Payment Scheme.

Find can find all the details that you need to know about inheritance tax and paying it here.