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Money, tax and benefits
Inheritance Tax
Inheritance Tax is the tax that is paid on your 'estate'. Broadly speaking this is everything you own at the time of your death, less what you owe. It's also sometimes payable on assets you may have given away during your lifetime. Assets include things like property, possessions, money and investments.
Who pays Inheritance Tax?
Estates and lifetime gifts
Not everyone pays Inheritance Tax on death. It only applies if the taxable value of your estate (including your share of any jointly owned assets and assets held in some types of trusts) when you die is above £312,000 (2008-2009 tax year). It is only payable on the excess above this nil rate band.
There are also a number of exemptions which allow you to pass on amounts (during your lifetime or in your will) without any Inheritance Tax being due, for example:
- if your estate passes to your husband, wife or civil partner and you are both domiciled in the UK there is no Inheritance Tax to pay even if it's above the £312,000 nil rate band
- most gifts made more than seven years before your death are exempt (but see the next section on trusts and companies)
- certain other gifts, such as wedding gifts and gifts in anticipation of a civil partnership up to £5,000 (depending on the relationship between the giver and the recipient), gifts to charity, and £3,000 given away each year are also exempt
Transfers into trusts and companies
Transfers of assets into most trusts and companies are subject to an immediate Inheritance Tax charge if they exceed the Inheritance Tax nil rate band (taking into account the previous seven years' chargeable gifts and transfers). Read our related article Inheritance Tax on transfers into trusts and companies. The rest of the current article deals with Inheritance Tax on an individual's estate on death.
Inheritance Tax nil rate band and rates
Inheritance Tax is charged at the following rate on death:
| Inheritance Tax | 2008-2009 tax year |
|---|---|
| Taxable value of your estate above which it is charged | £312,000 |
| Rate at which it is charged | 40% |
Who pays out the Inheritance Tax?
The 'personal representative' (the person nominated to handle the affairs of the deceased person) arranges to pay any Inheritance Tax that is due.
You usually nominate the personal representative in your will (you can nominate more than one), in which case they are known as the 'executor'. If you die without leaving a will a court can nominate the personal representative, in which case they are known as the 'administrator'.
Valuing the estate for Inheritance Tax purposes
If you have been nominated as someone's personal representative you have to value all of the assets that the deceased person owned. This valuation must accurately reflect what the assets would reasonably fetch in the open market at the date of death.
Deadline for paying Inheritance Tax
In most cases, Inheritance Tax must be paid within six months from the end of the month in which the death occurs, otherwise interest is charged on the amount owing.
Tax on some assets, including land and buildings, can be deferred and paid in instalments over 10 years.
Forms you need to complete
If the estate is unlikely to be subject to Inheritance Tax (an 'excepted estate')
| Country in which the deceased person lived | Required forms for excepted estates |
|---|---|
| England | Form IHT205 and form PA1 - application for probate |
| Scotland | Form C1 ('Inventory') and form C5 if they died on or after 6 April 2004; if they died before this date form C1 only |
| Northern Ireland | Form IH205 only |
The helpnotes to the forms tell you where to send them. If the deceased person was domiciled abroad different forms (and some restrictions) apply - follow the links below for full details.
If the estate is likely to be subject to Inheritance Tax
In this case you complete form IHT200 plus any relevant supplementary forms (these are indicated on the IHT200).
You also complete:
- form D18 if the deceased person lived in England, Wales or Northern Ireland
- probate application form PA1 if the deceased lived in England or Wales
- form C1 Inventory if the deceased lived in Scotland
(In Northern Ireland you only complete a probate application form at interview.)
The help notes on IHT200 tell you where to send the forms and next steps.
Further information
Read HMRC's Customer Guide to Inheritance Tax.
The Probate and Inheritance Tax helpline: 0845 3020 900 (open from 9.00 am to 5.00 pm Monday to Friday).
If you have a potentially large estate you should seek professional advice. It's also a good idea to make a will, nominating someone you trust to act as your personal representative.
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