Inheritance Tax
Complete Guide to Inheritance Tax in the UK
Inheritance Tax (IHT) is a tax that may be payable on a person's estate after they die. Depending on the value of the estate, the assets involved and who inherits them, some estates will pay no Inheritance Tax at all, while others may face a significant tax liability.
Understanding how Inheritance Tax works is an important part of estate administration and estate planning. Executors are responsible for ensuring any tax due is calculated correctly and paid before the estate is distributed.
This guide explains the basics of Inheritance Tax, who pays it, available exemptions and when professional advice may be appropriate.
What Is Inheritance Tax?
Inheritance Tax is charged on the value of a person’s estate after death if it exceeds the available tax-free allowances and no exemptions apply.
The estate includes:
- Property
- Savings
- Investments
- Shares
- Business interests
- Personal possessions
- Certain gifts made before death
Liabilities such as mortgages and debts are normally deducted when calculating the taxable value of the estate.
Who Pays Inheritance Tax?
The responsibility for dealing with Inheritance Tax usually falls on the executor or administrator of the estate.
They are responsible for:
- Valuing the estate.
- Calculating any tax due.
- Completing the required forms.
- Paying the tax where applicable.
- Providing information to HMRC.
Beneficiaries do not usually calculate or pay the tax directly, although the amount payable may reduce the value of their inheritance.
When Is Inheritance Tax Payable?
Inheritance Tax is generally considered during the Probate process.
Executors should establish:
- The value of all assets.
- Outstanding debts.
- Available tax-free allowances.
- Any applicable reliefs or exemptions.
The administration of the estate cannot usually be completed until the tax position has been addressed.
What Assets Are Included?
Common assets include:
- Houses and flats
- Holiday homes
- Bank accounts
- Investments
- Shares
- Business assets
- Jewellery
- Vehicles
- Valuable collections
Executors should prepare accurate valuations for all significant assets.
Common Reliefs and Exemptions
Depending on the circumstances, reliefs or exemptions may apply, including:
- Transfers between spouses and civil partners.
- Charitable gifts.
- Business Relief.
- Agricultural Relief.
- Nil-rate bands available under current legislation.
The availability of reliefs depends on individual circumstances and current tax rules.
Why Professional Advice Can Help
Inheritance Tax calculations can become complicated where estates include:
- Multiple properties.
- Family businesses.
- Overseas assets.
- Trusts.
- Large investment portfolios.
- Lifetime gifts.
An inheritance tax solicitor or specialist adviser can help ensure reliefs are properly considered and that the estate complies with legal and tax requirements.
Common Mistakes
Avoid:
- Guessing property values.
- Forgetting lifetime gifts.
- Missing filing deadlines.
- Overlooking available reliefs.
- Distributing the estate before tax matters are resolved.
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No. Many estates fall below the available tax-free thresholds or qualify for exemptions.
Generally, yes. Executors normally deal with tax liabilities before distributing the estate.
There are legitimate exemptions and reliefs available in certain circumstances. Professional advice can help ensure these are applied correctly.