There is a complex maze of rules surrounding Inheritance Tax (IHT) which means every estate must be reviewed in detail to determine how much, if any, IHT is payable. You must carry out sufficient investigation into the extent of the estate to establish its value. This must include enquiry about the extent of any relevant gifts made by the deceased during their lifetime.
Once the extent of the estate is known, unless the estate is an “excepted estate”, full details must be provided to HMRC, even if no IHT is due. When you have carried out the necessary IHT calculations, the next step is to pay the tax. It is important to note that Confirmation to the estate (the Scottish equivalent of Probate) cannot be granted until after at least some of the IHT has been settled with HMRC.
As a general rule, IHT must be paid within six months of the end of the month in which the person died. Interest will accrue on any outstanding balance until it is fully paid if you miss this deadline. There are various ways IHT can be settled, with options to apply for instalment payments on certain assets in the estate.
Typically, the deceased’s bank or building society will release funds from the deceased’s account to pay the IHT liability. In those instances, the payment is made by the bank or building society directly to HMRC.
If there is not sufficient money available to meet the IHT liability a loan may need to be negotiated to pay the IHT liability. The loan can be repaid from the proceeds of the estate once it has been realised. The loan could come from a commercial lender or a family member.
If there is some cash available but not enough, consideration should be given to whether part of the IHT can be paid by instalments.
The IHT proportion relating to certain assets may qualify for payment by instalments over a 10-year period. The instalment option can usually be claimed for assets that may take some time to sell. These might be houses, a controlling shareholding in a company, other qualifying business interests and certain unlisted shares, HMRC will charge interest on any unpaid IHT instalments.
Everyone’s circumstances are different and estate planning choices can be difficult. Murray Beith Murray specialise in succession and estate planning. If you would like advice on paying Inheritance Tax or, importantly, steps you might take to mitigate the impact of IHT, please contact us.
Murray Beith Murray Partner, Andrew Paterson, specialises in estate planning, asset protection and trusts. Andrew also heads our Executry group and has assisted many families with the legal issues arising following the death of a relative.
Murray Beith Murray was established in 1849, as advisors for generations of clients, committed to our values of integrity, expertise and trust. This aim and these values continue to this day, as does our commitment to be here when you need us.