Taxes you might have to pay

There are three main taxes that you may have to deal with when someone close to you dies:

Inheritance Tax
  Can I minimise the impact?
  Who pays?
  What forms are needed?
  Who values the estate?
  What about transfers into trusts?
Income tax
Capital Gains Tax

Inheritance Tax

Inheritance Tax may be payable on a person's assets when they die.

These assets may include:

• Property
• Pensions
• Investments
• Insurance policies
• Individual items such as cars, jewellery and paintings
• Gifts that the person made but were still benefiting from, e.g. if they had given their property to someone else but were still living there
• Gifts that they had made in the last seven years e.g. property, investments, possessions and money
• Assets held in trust that generated an income

Currently, the threshold for Inheritance Tax is £325,000 and everything over that amount will be subject to a tax of 40%.

A higher allowance may be available if the deceased was a widow or widower, but the rules are complicated, so it's often best to seek advice from a professional. To find out more please call us on 0800 195 2924.

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Can I minimise the impact?

There are steps you can take to minimise the impact of Inheritance Tax, but there are many things to consider which is why it's best to seek expert advice.

There are certain 'exemptions' which allow you to pass on amounts during your lifetime or in your Will without any Inheritance Tax being due:

• If your estate passes to your husband, wife or civil partner and you are both living in the UK there is no Inheritance Tax to pay - even if its value is above the current threshold.
• Gifts between husbands and wives are always free of Inheritance Tax - as are donations to charities and political parties.
• Most gifts made more than seven years before your death are exempt, and the tax on the gift reduces on a sliding scale if it was made between three and seven years ago.
• Certain other gifts, such as wedding gifts and gifts in anticipation of a civil partnership up to £5,000 (depending on the relationship between the giver and the recipient) are also exempt. Grandparents can hand over £2,500, and anyone else can give £1,000.
• The first £3,000 given away each year is also exempt. If you do not use up the full exemption in one year you can carry it forward, but only for one year.
• Gifts of up to £250 to an unlimited number of different individuals are also tax-exempt, but you cannot use both this and the annual £3,000 exemption to give to the same person.
• For married and civil partnership couples, provided that at least one partner was alive on 9 Oct 2007, there will be an additional 'transferable' nil-rate band on the death of the second partner if the first didn't fully use his or her amount.

To find out more please call us on 0800 195 2924.

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Who pays?

The person nominated to handle the affairs of the deceased person will need to arrange payment of any Inheritance Tax that is due.  

The deadline for paying Inheritance Tax is six months from the end of the month in which the person died, otherwise interest is charged on the amount owing.

Tax on some assets, including land and buildings, can be deferred and paid in instalments over 10 years.

Once Inheritance Tax has been paid, including any interest due, the Inland Revenue will write to confirm that their enquiries are complete and that no further tax is due.

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What forms are needed

If the deceased lives in England or Wales…
… and Inheritance Tax is unlikely to be due:

Probate application form PA1
Inheritance Tax form
IHT205

… and Inheritance Tax is likely to be due:

Probate application form PA1
Inheritance Tax form
IHT400 and supplementary page
Supplementary form IHT421
'Probate summary'

If the deceased lives in Northern Ireland…
… and Inheritance Tax is unlikely to be due:

Inheritance Tax form IHT205

… and Inheritance Tax is likely to be due:

Inheritance Tax form
IHT400
Supplementary form IHT421
'Probate summary'

If the deceased lives in Scotland…
… and Inheritance Tax is unlikely to be due:

Form C1 'inventory'
Form C5

… and Inheritance Tax is likely to be due:

Form C1 'inventory'
Inheritance Tax form
IHT400

For more information about probate in Scotland, please visit:
www.scotland.gov.uk

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Who values the estate?

The personal representative (i.e. as executor or administrator) will value all of the assets that the deceased person owned.

This valuation must accurately reflect what the assets would reasonably fetch in the open market at the date of death.

Click here to find out more about valuing the estate

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What about transfers into trusts?

Transfers of assets into most trusts and companies are subject to an immediate Inheritance Tax charge if they exceed the threshold (taking into account the previous seven years' chargeable gifts and transfers).

Please click here for more information on Trusts.

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Income Tax

We will complete the Income Tax returns for the period between 6th April to the date of death and any outstanding ones from previous years, together with Income Tax and Capital Gains Tax forms for the period of administration.

The following could be subject to income tax:

• Earnings from employment or self-employment
• Pensions - state, company and personal
• Interest on savings
• Income from shares (dividends)
• Rental income
• Income paid to the deceased from a trust

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Capital Gains Tax

The estate of the person who died may be liable to Capital Gains Tax if the deceased made any gain from the disposal of any of his/her assets. The personal representative (executor or administrator) of the deceased will need to calculate and settle any Capital Gains Tax liability during the administration of the estate. 

There are various tax forms to complete. These can be quite complicated so you may wish to seek professional help from a solicitor or probate specialist.

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