Our expert local solicitors for Wills discuss Inheritance Tax and how soon this needs to be paid on estates in England and Wales
Posted on 11th June 2021
Our expert local solicitors for Wills consider Inheritance Tax when dealing with estates in
England and Wales. Read on for more information.
Our expert local solicitors for Wills are often asked about whether our Wills client’s estates will be subject to Inheritance Tax. Below our expert team have discussed inheritance tax, when it is payable and what exemptions may be available on your estate.
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What is the rate of inheritance tax?
The current rate of inheritance tax payable on estates in England and Wales is 40%. This means that anything above the value of the nil-rate bands available to your estate is charged at 40%. You can read more about nil rate bands, below.
For example, if your estate is worth £600,000 and your tax-free threshold is £325,000, inheritance tax will be charged on £275,000 (£600,000-£325,000=£275,000). This would mean that your estate would be liable for inheritance tax of £110,000.
Of course, other exemptions may apply, such as the ones discussed in more detail below. Find out more about inheritance tax rates on gov.uk, here.
What is the nil rate band for inheritance tax?
The current nil rate band for inheritance tax is set at £325,000. This means that your estate (made up of all assets that you own at your death, less any liabilities) can be worth up to this value before you would be liable to pay inheritance tax. There are other matters that can affect the value of your estate, such as gifts made during your lifetime or whether you have the right to any assets held in trust. It is advisable to always seek expert legal advice from probate solicitors near you before submitting any inheritance tax forms to ensure that you have included the correct information.
On top of the nil rate band, there may be other exemptions available for your estate, such as the residence nil rate band, business property relief or agricultural property relief. In addition, married couples can transfer each other’s unused nil rate band and residence nil rate band on the second death. The current residence nil rate band is set at £175,000. The nil rate bands could change in the future so you should keep an eye on these compared to the value of your estate if you think that your estate may be subject to inheritance tax.
Does my spouse have to pay inheritance tax?
Anything left to a spouse or civil partner is free from inheritance tax. In addition, any assets owned jointly will usually pass by survivorship and therefore would not be included in the value of your estate for inheritance tax purposes.
If you decide to leave gifts in your Will of £325,000, with the rest going to your spouse, there would likely be no inheritance tax to pay. However, on their death, your spouse would not be able to claim your nil rate band as you would have used this up on the gifts that you made.
How much can my estate be worth before inheritance tax is payable?
As a general guide, as a single person with no children, your estate could be worth up to £325,000 before inheritance tax would be payable. As a single person with children, providing that your estate is eligible for the residence nil rate band, your estate could be worth up to £500,000 before inheritance tax would be payable.
As a married couple or civil partners, you have the same amounts discussed above. However, you can claim each other’s on the second death and therefore your estate could be worth up to £1 million before inheritance tax would be payable.
What is business relief?
When clients ask our expert local solicitors for Wills about business relief, we generally need more information about the person’s assets and business so that we can ascertain whether they would be eligible. We would always recommend speaking to a professional about business relief before taking any action in respect of this.
Gov.uk provides some brief information about business relief, which you can find here. In brief, certain assets can be subject to a 50% or 100% relief of inheritance tax based on what they are or their use. For example, you can get 100% business relief on a business or interest in a business and shares in an unlisted company. As explained above, there are different factors which can affect business relief, and you should therefore always seek advice from a professional will drafter if you think that your estate may qualify.
What is agricultural property relief?
Agricultural property relief is a relief on inheritance tax which can be claimed against certain land or property, if it meets a set criterion. In order to advise a client on this, our expert will drafters would need information about the property and the land, including the extent of the land, the value and the use. You can find out more information about agricultural property relief on gov.uk, here.
Again, if you think that your estate could qualify for agricultural property relief, you should contact expert local wills solicitors near you to discuss the matter further.
What other reliefs are available?
If you are leaving a certain portion of your estate to charity, the amount of inheritance tax that would be payable can decrease.
Usually, the amount that you donate to charity will either be taken off the value of your estate before inheritance tax is calculated, or if you leave 10% or more of the residuary estate to charity, the inheritance tax rate will reduce from 40% to 36%.
Your residuary estate is made up of all your assets after liabilities, testamentary expenses and funeral costs have been paid.
Find out more about charity donations in your Will, here. To work out how much of a donation would need to be made on your estate for the reduced rate of inheritance tax to apply, use the gov.uk calculator, here.
How do you pay inheritance tax?
Usually, when dealing with a person’s estate that is subject to inheritance tax, you will need to obtain an inheritance tax reference. You can request this online from HMRC, here.
Once you have calculated the amount payable, you need to send the relevant inheritance tax forms to HMRC along with your calculation. They will then send you a confirmation of the amount payable, along with details of how this can be paid. Alternatively, find payment details on gov.uk, here.
How soon does inheritance tax need to be paid?
Inheritance tax must be paid by the end of the sixth month after the person died. For example, if the person died in February, you must pay the inheritance tax by the end of August. These dates differ for inheritance tax payable on trusts.
In some cases, the tax can be paid in annual instalments. This is usually the inheritance tax payable on assets that take time to sell, such as properties. Find out more about annual instalments, here.
It’s important to note that you must indicate on IHT400 (the inheritance tax form) if you wish to pay in instalments. In addition, interest will usually be charged when payment is made in this way. Work out the interest using the gov.uk calculator, here.
What happens if payment of inheritance tax is late?
If payment of inheritance tax is not made within the correct timeframes, there may be interest and/or penalties to pay. You should deal with submission of the inheritance tax forms as soon as possible after a person has died. If your loved one has died and you need to arrange payment of inheritance tax, seek expert legal advice from probate solicitors near you as soon as possible.
Can MG Legal, solicitors near me, help?
Absolutely. Our expert team can assist with Will drafting, inheritance tax advice and probate applications with estate administration. You can contact our team online, here, or call your local office to find out how we can help you with your legal matter..
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