Inheritance Tax: How Much Will Your Estate Pay?

Inheritance tax might have to be paid if a person’s “estate” is worth over £325,000 when they die.

This increases to £500,000 if you give your home away to your children or grandchildren. This is known as the residence nil-rate band.

Currently, the inheritance tax rate is set to 40%.

IHT is only paid on the portion of your estate that lies above the threshold. It doesn’t apply to the total value of your estate.

Here’s an example of how it works:

• Your estate is worth £525,000
• The IHT threshold is £325,000
• IHT applies to £200,000 of your estate (£525,000-£325,000)
• Your estate pays £80,000 (40% of £200,000)

Inheritance tax is paid by one of the following people when a person passes away:

• An executor: That’s the person named in a will who is legally responsible for managing the deceased’s estate. It’s their job to pay any debts that are owed.
• The administrator: That’s the person appointed to manage your estate if you don’t have a will, you haven’t named anyone in your will, or the named person declines the role.

To go about paying the bill, the executor or administrator must apply for a payment reference number on GOV.UK.

Then they can pay the bill to HMRC using a bank transfer, telephone banking, in-branch or via cheque.

Normally, there’s no inheritance tax to pay if:

• the value of your estate is less than £325,000 (If you leave your home to your children or grandchildren, the threshold can increase to £500,000.)
• anything above the £325,000 threshold is left to a spouse, civil partner, charity or a community or amateur sports club
• you give gifts of up to £3,000 per tax year. These are exempt from IHT.

The executor or administrator has to pay inheritance tax by the end of the 6th month after a person passes away.

For example, if someone passes away in January, their estate tax bill must be paid by 31 July.

Interest is added to the inheritance tax bill if the deadline is missed.

You’re certainly not alone if you’re worried about paying inheritance tax.

Handling your loved one’s affairs after they pass away can take months – sometimes years.

If you can’t pay an inheritance tax bill, you might be able to apply to HMRC for an extension called a “grant on credit.”

Before you can apply, you’ll need to try and sell as much of the estate as possible to cover what you can of the inheritance tax bill.

HMRC decides who qualifies for an extension on a case-by-case basis.