Losing a loved one is painful and brings all manner of challenges with it; both on an emotional and a practical level. One of the most common hurdles we see encountered after a bereavement is the subject of inheritance tax. Whilst it will affect most of us at some point, issues around inheritance tax are often overlooked until the grieving process is underway; this tends to add to what is already an extremely stressful time.

With this in mind, we’ve put together a concise guide to the basics of inheritance tax. By building an understanding of the key issues well in advance, you will be much better placed to deal with the situation should it arise.

What is inheritance tax?

Inheritance tax is a payment arising when the estate of the deceased (including property, money and possessions) exceeds £325,000. The inheritance tax threshold can vary depending on your relationship to the deceased and exactly how the estate is being divided. For example, if you leave your house to your children (or your grandchildren), the inheritance tax threshold increases to £425,000.

What is the inheritance tax rate?

As it stands, the inheritance tax rate is 40%. However, as with any tax, this has the potential to change over time. It’s worth noting that inheritance tax is only paid on the portion of the estate that exceeds the £325,000 inheritance tax threshold. So for an estate valued at £350,000, inheritance tax is only paid on the £25,000 difference. At the current rate of 40%, that would equate to a £10,000 inheritance tax payment.

Who has to pay inheritance tax?

Inheritance tax is the responsibility of the administrator of the estate, or executor of the will if one had bene made. The required payment is made to Her Majesty’s Revenue and Customs (HMRC), who are also responsible for dealing with typical day-to-day taxation. Ordinarily, those receiving part of the inheritance don’t have to pay additional tax, except in situations such as when a rental property is bequeathed. Those who have been gifted in excess of £325,000 by the deceased within seven years of their death will also be liable for inheritance tax.

When is inheritance tax due?

Inheritance tax must typically be paid by the end of the sixth month following the passing of the deceased. For example, if the deceased passed away in the June, the inheritance tax must be paid by 31st December.

Can inheritance tax be paid in instalments?

Yes. In cases where the estate includes an item that may prove difficult to sell, such as a property, arrangements can be made to spread the payments over ten annual instalments. However, this must be established in advance and clarified on the IHT400 tax form. Interest will also need to be paid on the instalments, so paying in this way tends to be a more expensive option. However, you can chose to pay the remaining inheritance bill outright at any time should circumstances change.

Where to get help with inheritance tax?

More information on inheritance tax can be found at https://www.gov.uk/inheritance-tax, but if you want to speak to someone directly, we’ll be happy to help. Call us on 0800 470 4820 or 0333 202 7198 or find your local office here: https://www.tfmcentre.co.uk/offices. Alternatively you can use our FREE TFMC mobile app as it has many inbuilt calculators to help with your finances, one of which is an inheritance tax calculator. You can find the app in the Apple App Store and Android Google Play Store by searching “tmfc”.

John Stolliday
John Stolliday

John Stolliday runs The Financial Management Centre in Luton East. John is a qualified accountant (FCCA) and bookkeeper (MICB) with UK and Middle East experience in the construction and building services sectors, handling company turnovers up to £100m and staff of 15. John has held senior roles, up to board level, in civil engineering, industrial engineering, pipelines, general building and building maintenance companies.