Inheritance Tax on death how much is payable?
This page has four purposes:
- To introduce the option of reducing inheritance tax on death where it is not too late for advance planning.
- To review the dangers of dealing with an estate where Inheritance Tax may become payable on the first or second death and the penalties for getting it wrong.
- To point you in the direction of Deeds of Variation which may form the cornerstone of IHT Planning for the beneficiaries and their families.
- To offer an Inheritance Tax Review Service.
The best place to start, where possible, is:
Advance Planning to save Inheritance Tax.
Inheritance Tax is mostly an avoidable tax usually paid on an estate when somebody dies. We say avoidable as if you have spoken to our Inheritance Tax Planning Barrister we would have been able to either reduce the IHT bill substantially or eliminate it. Even after a death it is often possible to dramatically increase the benefit to future generations as long as you are quick enough. So that is an extra reason for talking to us if there is likely to be a significant bill – especially as our fees are very modest.
IHT also sometimes payable on trusts or gifts made during someone’s lifetime so gifts made in the previous seven (and sometimes fourteen) years have to be taken into account. Which rather shows the need for careful planning.
The biggest boost is inheritance tax on property as property values – especially in London – have gone through the roof. And the Chancellor is rubbing his hands in glee!
How is Inheritance Tax on Death Worked Out?
Assuming there are no lifetime gifts, trusts or IH Tax-efficient assets to complicate matters, most of us have an Inheritance Tax free allowance of £325,000 (that is the “Nil Rate Band”) and everything over that is taxed at 40% (to April 2015 at least). Unless you are married or civil registered, and leave everything to your spouse (usually) there is no tax to pay. Obviously, the Taxman is involved, it isn’t always as simple as that for everyone.
But in most cases, all of the assets and the Nil Rate Band transfer to the spouse, who then has all the assets and TWO Nil Rate Bands on their death (ignoring gifts etc again). So, on death, tax is only payable on the second death over (currently) £650,000 with just the balance is taxed at 40%.
If the first to die leaves anything to anyone other than the spouse, that proportion of the Nil Rate Band is no longer transferable, It is the proportion of unused Nil Rate Band which is transferred, not the amount. So as the Chancellor increased the allowance, the monetary value of the amount goes up.
Penalties for incorrect payment of Inheritance Tax.
Firstly, you are required to pay within 6 months of the end of the month in which the death occured, which can be a pretty tall order in complicated estates, after that interest is payable.
If the Inheritance Tax return is incorrect, there are penalties on top of the interest which can double the IHT bill, with the careless executor being personally liable for a penalty.
In order to avoid such problems. it is vital to instruct professionals (if you are going to use them) at the earliest possible moment.
Inheritance Tax on death can usually be avoided
– if you contact us in time!
Capital Gains Tax on Death.
Another interesting tax issue is that Capital Gains Tax is wiped out on death – otherwise gains could be taxed twice. So selling assets with taxable gains just before you die is a really bad idea – even if you won’t be liable for IHT, a nice tax free uplift is to be welcomed.