In England and Wales, Inheritance Tax (IHT) has to be paid when an individual’s Estate (their property, finances and belongings) exceeds the Inheritance Tax threshold set by the Government.
The Inheritance Tax Threshold for a single person is £325,000 (and can be subject to change each year in the Budget). The current Inheritance Tax rate in England and Wales is 40% on anything above tax free threshold.
However, there are additional Inheritance Tax allowances in some circumstances for people who leave their homes to their children or grandchildren and depending on whether the Deceased was married there can be further Inheritance Tax allowances.
The Inheritance Tax allowance can be reduced depending upon who the beneficiaries are, if any lifetime gifts have been made, and when they were made.
You will normally be expected to make this tax payment within six months of death and failure to do so could result in penalty charges and interest.
Also, failure report all assets belonging to the Estate could result in investigations and even prosecution, so it is important that you fully understand the composition of the Estate.
The biggest challenge in completing the Inheritance Tax Forms is ensuring that all assets and liabilities are recorded. Knowing what Estate Assets need to be recorded for Inheritance Tax purposes can be confusing.
The most common error in Inheritance Tax reporting is failure to record gifts made by a deceased. A common misconception is that gifts made over 7 years ago do not need to be included. This is not entirely accurate. If a deceased gave a gift during their lifetime, no matter how long ago they left the gift, if they have retained a beneficial interest in the gift (for example, putting a house in their children’s name but continuing to live in the house rent free) then it must be included for inheritance tax purposes.
Expert professional assistance should be sought before applying for a Grant of Probate or Grant of Letters of Administration.
RMNJ are always glad to discuss any questions you have without obligation and at first instance entirely free of charge.
Back to RMNJ's Guide to Probate