Inheritance tax (IHT) is usually charged at 40 percent and will need to be paid when a person dies and is passing on their assets. An IHT threshold can be increased if the person involved leaves parts of their estate to immediate family and to ensure this happened properly, wills are usually used.
Wills can be created to ensure that assets are passed onto intended recipients and they can ensure that IHT bills are not overpaid.
However, in some extreme cases if a will is not completed or is invalid, a person’s property can be passed onto the crown as ownerless property under “bona vacantia” rules.
This will happen if the person who has died has no known family and hasn’t designated recipients of their estate in a will.
If a will is in place, an “executor” will handle how the IHT bill is paid.
READ MORE: Inheritance tax: Residence nil-rate band ‘valuable’ for IHT burdens
This will involve asking banks, building societies and/or National Savings & Investments (NS&I) to pay some or all of the IHT from the deceased person’s accounts to HMRC.
If this is done, a four part process will need to be followed:
- The parties involved will need to ask the bank, building society or NS&I to make them a ‘personal representative’ – each one will do this in a different way
- They’ll then need to get their IHT payment reference number ready
- An IHT423 form will need to be completed and sent to the bank, building society or NS&I. A separate form will need to be send for each account the parties want to pay HMRC from
- Finally, IHT400 forms, IHT421 probate summary forms and any supplementary pages or supporting documents will need to be sent to HMRC
It should be noted that certain “gifts” can be given throughout a person’s life which will be exempt from an IHT calculation.
This can include wedding gifts and charitable donations.
Additionally, relief may also be granted on certain types of property such as farmland and business buildings.
Once a gift has been given, the giver will need to live for at least seven years and if they die before this, the gift will be counted as part of the estate and will incur IHT.