Inheritance Tax

Inheritance Tax is a tax on the estate (the property, money or possessions) of someone who has passed away.
Valuing the estate

• Identify the deceased assets and debts such as savings, investments, mortgages and loans
• Estimate the estates value. This will affect how you report the value, and the deadline for reporting and paying any Inheritance Tax. Most estates are not taxed.
• Report the value of the estate – how you do this depends on whether you need to send full details of the estate and its value.

Identifying assets

• Bank accounts
• Savings
• Pensions
• Property
• Household good
• Personal Items

Identifying debts

• Utility bills
• Mortgages
• Credit cards
• Loans
• Funeral Expenses

There is normally no Inheritance Tax to pay if:

• The value of your estate is below the £325,000 threshold
• You leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club

You may need to send full account of details of the estate to HMRC, even if no Tax is due, if the person who died:

• Gave away over £250,000 in the 7 years before they died (£150,000 if the person died before 31 December 2021)
• Gave gifts then continued to benefit from them in the 7 years before they died
• Left an estate worth more than £3 million (more than £1 million if they died before 31 December 2021)
• Died on or before 31 December 2021 and had inherited part of the Inheritance Tax threshold from a previous spouse or civil partner
• Was ‘deemed domiciled’ in the UK
• Had foreign assets worth more than £100,000
• Was living permanently outside the UK when they died but previously lived in the UK
• Had a life insurance policy that paid out to someone other than their spouse or civil partner and also had an annuity
• Had increased value of a lump sum from a personal pension to be paid after their death, while they were terminally ill or in poor health
• Had agreed that a property they’d given away during their lifetime would be part of their estate rather than pay a pre-owned asset charge
• Gave gifts that were paid into trusts
• Held assets worth over £250,000 in trust (£150,000 if the person died on or before 31 December 2021)
• Held more than one trust
• You’ll also need to complete a full account if the deceased died on or before 1 January 2022 and assets held in trust passed to a surviving spouse, civil partner or charity and the trust was worth:
• £1 million or more
• £250,000 or more after the amount passing to the surviving spouse, civil partner or charity has been deducted

Deadlines
There are only deadlines if the estate owes Inheritance Tax
If it does, you’ll need to:

• Send Inheritance Tax forms within one year
• Start paying tax by the end of the sixth month after the person died – you can make a payment before evaluating the estate

Records
HMRC can ask to see your records up to 20 years after Inheritance Tax is paid
You must keep copies of the:

• Will
• Signed Inheritance Tax forms and supporting documents
• Records showing how you worked out the value of assets in the estate
• Documents showing any unused Inheritance Tax threshold that can be transferred to a surviving spouse or civil partner
• Final accounts

Final Accounts
Include any documents showing how you distributed money, property or personal belongings from the estate

• Letters from HMRC confirming that you paid the Inheritance Tax
• Receipts showing debts paid, for example utility bills
• Receipts for your expenses from dealing with the estate
• Written confirmation that ‘beneficiaries’ (anyone who inherited) received their share of the estate