Probate and Inheritance Tax

Inheritance tax is only payable if the deceased’s estate, including any gifts the deceased gave out within seven years of death, exceeds the Inheritance tax threshold at the given time of estate valuation. The surplus of the threshold amount is taxed at 40%. Currently the threshold for the year 2011-2012 is £325,000. A probate solicitor could help you with dealing with the complications of inheritance tax on estates.

Who has to pay inheritance tax?

Inheritance tax is usually paid by the personal representative of the execution of the will. This comes out of the estate of the deceased however at times the personal representative may need to pay the tax themselves or borrow money to do so. This is because inheritance tax needs to be paid within six months of the death, and before the grant of representation can be obtained otherwise interest will accumulate. Therefore it is not always possible to access the money from the estate in this time period. If this does happen then the personal representative can claim the inheritance tax back from the estate once the funds are available, and they would be prioritised over other trustees who are to inherit from the estate.

There are other circumstances where other people may have to pay inheritance tax, visit our inheritance tax page for further information.

How do you know if inheritance tax is payable?

After the estate is valued it will become clear whether inheritance tax is to be made payable or not. If the value of the estate including any gifts given by the deceased exceeds the threshold then inheritance tax must be paid.

Exemptions from inheritance tax

In certain circumstances where inheritance tax should be payable, as the value of the estate exceeds the threshold, it is possible to escape the payment of inheritance tax. This will be when:

  • Gifts are made to a ‘qualifying’ charity, either left in the will or given during the life of the deceased
  • Things are left to a surviving spouse or civil partner who permanently lives in the UK even if the value of them is above the threshold. This includes any gifts given to the spouse or civil partner with a value higher than the threshold.
  • Small gifts given by the deceased to as many people as they like can be given tax free for a value of up to £250.
  • Gifts given to those who are getting married or in a civil partnership are tax free to a certain amount
  • Gifts given where the deceased lives for more than seven years after giving it are tax free regardless of the value of the gift.