Although it may not be at the forefront of your mind after a loved one has passed away, it is important to calculate whether Inheritance Tax is due, to avoid facing fines and prosecution.
Especially with Inheritance Tax (IHT) reaching new highs in April, individuals need to be aware of when they could be liable.
When compared with April last year, receipts rose by £10 million, according to HM Revenue & Customs (HMRC) which is said to be due to rises in the value of assets alongside an increase in the number of wealth transfers during the pandemic.
What is the value of the estate?
Before you can determine whether you will be liable to pay Inheritance Tax, you will need to know the value of the estate (which consists of the deceased’s property, possessions, and money).
This includes identifying all assets and debts that the individual held when they passed away.
From this, the value of the estate can be estimated, which should include any gifts made (such as cash or valuable items) in the seven years before they died, along with the value of any trusts that they were beneficiaries of.
When do you have to pay IHT?
Currently, the threshold to pay Inheritance Tax is £325,000. Therefore, it will not be due if the value of the estate amounts to less than £325,000.
The standard rate for Inheritance Tax is 40 per cent, but this is only applied to the amount above the £325,000 threshold.
Another consideration is that Inheritance Tax is not due when the value of the estate exceeds £325,000 but the amount above the threshold is left to the deceased’s spouse or civil partner, a charity or a community sports club.
It is also worth noting that, if Inheritance Tax is due, it must be paid by the end of the sixth month following death.
Need tax advice? Contact us.