It’s possible you have 99 problems, but paying inheritance tax (IHT) ain’t one. In short, you’ll only need to worry about IHT if your estate is large enough to incur the charge.
However, to ensure your loved ones receive their rightful share to an estate, it’s essential to consider IHT when writing your will. If you’re unfamiliar with inheritance tax, you might be unsure about what it is or what you need to do. Keep reading to learn more about paying inheritance tax and the processes involved.
Who Doesn’t Need to Worry About Paying Inheritance Tax?
IHT goes onto the estate of a person who passes away. In general, IHT’s impact stretches to everything from finances, property, and possessions. However, you will not need to pay inheritance tax if:
- Your estate’s value is below the NRB of £325,000.
- You have chosen to leave everything from above the threshold to either your spouse or civil partner.
- Also, you’re leaving the above threshold to an exempt beneficiary (g. a charity).
However, your estate’s value is higher than the NRB. Accordingly, the sum above the threshold could be subject to a 40% tax rate. Ultimately, this could prevent your loved ones from receiving a lump sum or property left for them in your will, which could lead to them challenging a will.
Currently, the NRB rate is £325,000 until 2021 when it could be subject to change. However, the rate could rise if you are surviving civil partner or widowed. Yet, it is possible for couples to transfer available NRB to a surviving partner.
This is a Transferable Nil Rate Band (TNRB) and can double the amount to £650,000.
Paying Inheritance Tax: When Do You Have To Do It?
HMRC require IHT to be paid six months after a person’s death. A failure to do so will result in the tax accruing interest. A will’s executor can pay the tax using various assets. For instance, the testator’s property or by making instalments over a 10-year period.
However, the outstanding sum is subject to interest charges. But an executor might sell a family member’s assets prior to paying IHT. Therefore, they must ensure both the instalments and any interest incurred are consequently paid.
Unfortunately, if you fail to account for inheritance tax when writing a will, this could lead to inheritance disputes. Even worse, it could cause a beneficiary to contest a will, as they might believe they have not received their fair share of an estate.
How to Pay Inheritance Tax
An executor must apply for an IHT reference number at least three weeks before payment is due on the estate. Upon receiving the number, an executor can either:
- Pay it from their personal bank account.
- Or, pay it from a joint account with the testator.
To make a full or partial payment, you can pay via:
- Online or telephone banking
- Your bank or building society
- CHAPS or Bacs
- A cheque through the post
If your estate is above the NRB threshold, inheritance tax cannot be avoided. To prevent inheritance disputes from arising, you must factor in IHT when writing a will, which will ensure you provide your loved ones with an equal share of your estate, if desired.