Inheritance tax is currently set at 40 percent, and is payable on the value of an estate above a particular threshold. While this threshold can change from person to person, it is usually set at £325,000, and levied on the value of an estate above this amount. But for those left behind to deal with an estate, the deadlines HMRC impose upon the tax are important to note.
Inheritance Tax must be paid by the end of the sixth month after the person in question has passed away.
For example, if the person died in January, the Inheritance Tax must be paid by July 31.
And there can be harsh penalties for those who do not meet this deadline.
If the tax bill is not met within this particular time frame, HMRC will begin charging interest to pay on top of an existing bill.
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This could create extra strain on grieving families, so it is important to deal with IHT as soon as possible.
The executor of a will – in charge of the IHT bill – may choose to pay the tax on certain assets such as property, which are difficult to liquidate.
However, the outstanding amount of tax will still be charged interest.
The Money Advice Service therefore urges people to think about the tax bill before they pass away.
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If an estate is likely to incur any Inheritance Tax at all, then executors are encouraged to undertake a process called ‘payment on account’.
This prompts an executor to pay some of the tax within the first six months of death, even if an estate has not been fully valued.
This, the service states, helps the estate to reduce interest charged for taking longer than six months to sell assets.
Later down the line, if HMRC has found a person has overpaid in IHT, it will offer refunds.
This is a process undertaken after probate – the right to deal with the money and possessions of the deceased – is given.
Before a person can pay IHT, they must receive a payment reference number – this can be applied for online, or by post using the IHT422 form.
The bill can be paid from an executor’s bank account, or from an account which is owned by the deceased to settle up any bill with the taxman.
For those who are paying in instalments, however, there is one important point to note.
HMRC do not send receipts for each payment a person makes, so it is important to keep track with a bank or building society.
The Revenue will only write to a person once they have paid all the Inheritance Tax, and any interest, they owe.
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