Who pays inheritance tax in probate?

In the tax year 2011-2012 inheritance tax is only due on estates worth over £325,000. Estate is the value of the deceased’s assets, less debts. Generally inheritance tax is paid by the executor or administrator of the will-generally known as the personal representatives of probate. In certain situations however trustees or beneficiaries may need to pay inheritance tax, a probate solicitor could help you with these areas.

Executor pays inheritance tax

Where there are no assets held in a trust an executor as specified in the will; or an administrator- in absence of a will, would usually pay inheritance tax on any assets held in the estate.

The inheritance tax must be paid within a period of six months and before the grant of representation can be issued. The inheritance tax usually comes from the estate of the deceased however this may not always be the case. Some banks will not give personal representatives any assets belonging to the deceased until they have received a sealed copy of the grant of representation, but this grant cannot be issued until inheritance tax has been paid. Therefore without access to the deceased’s assets paying the tax from the estate may be difficult if not impossible. Additionally even if the personal representative is granted access to the assets in the estate, it may be a while before they can get them, as inheritance tax needs to be paid within six months. This presents some obvious problems.

Therefore at times it is common for the personal representative or other members of the family to pay the inheritance tax and claim a reimbursement once assets are available. If this is the case they are entitled to the reimbursement before the other distributions are made amongst the beneficiaries.

Trustee pays inheritance tax

If the transfer of the trust is above the inheritance tax threshold (£325,000 for tax year 2011-2012) then the settlor (the person making the transfer) must pay inheritance tax.

The trustees must however pay inheritance tax on land and assets held in trust when:

  • The beneficiary of the trust dies
  • Every 10 years  after the original transfer of the trust
  • A transfer out of trust

Beneficiary pays inheritance tax

A beneficiary (also known as a donee) may have to pay inheritance tax if the settlor or trustees cannot pay it. This will be when

  • They receive a gift, but the person who made it dies within seven years of making it
  • The benefit from a trust at the time of death
  • They are a joint owner of the property excluding a spouse or civil partner
  • They receive a share of an estate after death

However inheritance tax will only need to be paid if the value of the gift or assets exceeds the inheritance tax threshold for that given tax year.