This is a type of tax that must be paid to HMRC following someone’s death if the value of their estate exceeds the available tax allowances. Any part of your estate that exceeds the available allowances is taxed at a rate of 40%. It is the value of your net estate that is used for inheritance tax purposes so any debts can first be deducted.

Firstly, anything you leave to your spouse or civil partner is exempt from Inheritance Tax, so it is usually only on the death of a surviving spouse that Inheritance Tax may become due. Gifts to charities are also exempt from Inheritance Tax and certain business assets may also qualify for relief.

There are two main tax allowances available today and these are known as the Nil Rate Band and the Residential Nil Rate Band. The Nil Rate Band is currently £325,000 and is available to everyone. The Residential Nil Rate Band is more complicated and certain criteria must be met in order to qualify for it. If your estate does qualify for the Residential Nil Rate Band, then you are entitled to a further tax allowance of £150,000. This allowance will increase to £175,000 on 6 April 2020.

The Residential Nil Rate Band requires certain criteria to be met in order to qualify for it. To qualify for the relief, you must:

  • own a property at the date of your death;
  • have left that property to your children or grandchildren; and
  • Your total estate must worth less than £2m.

Spouses and Civil Partners are entitled to claim any unused tax allowance from their deceased spouse/civil partner, but this is calculated and claimed at the time of the death of the survivor.

HMRC expect Inheritance Tax to be paid within 1 year of death. You will be charged penalties if the Inheritance Tax is not paid in time. However, after just 6 months following someone’s death HMRC will begin charging interest on the Inheritance Tax due until it is paid so it is best to act quickly when dealing with someone’s estate.

It is the duty of the deceased’s Executors (or Personal Representatives if there is no Will) to deal with the payment of Inheritance Tax to HMRC. The Executor could be held personally liable for the Inheritance Tax and penalties if it is not dealt with correctly.

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