Inheritance tax is currently set at 40 percent, and is payable on the value of an estate which is above a particular set threshold. For most people, this standard value is at £325,000, but it is worth noting this can change. In the 2018/19 tax year, IHT receipts collected by HMRC were valued at £5.4billion.
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This shows how many people are affected by the tax, and how important it is to ensure families know how to pay.
While Inheritance Tax is often the last thing people wish to think about in a time of grief, it is necessary to be paid, so forward planning can help in this process.
An IHT bill must be paid by the end of the sixth month after a person has died.
For example, if the person died in January, Inheritance Tax will need to be paid by July 31.
There are penalties which are imposed by HMRC for non-payment, namely an interest charge, so it is important to make sure the bill is met.
The IHT bill is usually dealt with by the person who is designated to be in charge of an individual’s estate, typically an executor.
But there is sometimes a process people must go to in order to receive the right to deal with an estate.
This is known as applying for probate, and people will receive a ‘grant of probate’ if the deceased left a will.
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Britons are encouraged to contact each asset holder to find out if they will need probate to get access to assets.
Before applying for probate, an executor must estimate and report the estate’s value.
In order to pay the IHT bill, an executor will need to get a payment reference number, which can be sourced from HMRC at least three weeks before a payment is made.
This can be applied for online, or by post using the IHT422 form.
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However, the government website has warned individuals not to use the 15-digit number from the online Inheritance Tax service in order to report the value of an estate.
Once a payment reference number is received, the bill can be met in two main ways.
A person may choose to pay from their own bank account, and in this instance can do so through online or telephone banking or through a bank or building society in person.
Alternatively, the bill can also be paid from accounts owned by the deceased, which include NS&I accounts – backed by the government – or government stock.
However, to avoid late payment, people can also make payments before they know the exact amount of Inheritance Tax owed by the estate.
These are known as payments on account, but if HMRC finds anyone has overpaid, they will offer a refund.
The Revenue will also pay interest on the amount a person has overpaid.
For those looking to legally reduce their Inheritance Tax bill, reliefs and exemptions may also be available dependent on individual circumstances.
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