Inheritance Tax - Basics
Inheritance Tax is a Tax payable on the Estate of a deceased person. An Estate includes the complete assets of a person from their house, to other owned property, to savings to the smallest of household items. It also includes anything that the deceased person gave away as a gift in the seven years leading up to their death.
Inheritance Tax has existed in some form since the late 18th Century in the U.K. and exists in most other countries across the world. Countries exempt from inheritance tax include Australia, the British Virgin Islands, New Mexico, South Dakota, South Carolina, Utah (these last 4 being states of the U.S.A) and Vanautu.
In English Speaking countries where Inheritance Tax is applied it is variously known as ‘Inheritance Duty’, ‘Excise Duty’, ‘Excise Tax’, ‘Gift Tax’ and ‘Death Duty’.
Inheritance Tax seems as ubiquitous as Value Added Tax across most cultures and is an unavoidable Tax for those with assets above a certain amount. However, there are many loopholes and ways of avoiding paying as high taxes as you may otherwise have done (see related articles).
Paying Inheritance Tax
Inheritance tax is payable by all persons upon death – something which clearly effects the living who are close to them more than the deceased themselves. Inheritance tax in the U.K. is payable on all estates worth over £325’000. Married couples are taxed jointly on Estates worth £650’000 or over. The first £325’000 of an Estate (and the first £650’000 for a married couple or a couple in a civil partnership) is due for tax at the rate of 0%, with all assets after that being chargeable at 40%.
Inheritance Tax is paid following a valuation of the Estate of the Deceased and is paid by the ‘personal representative’ who has been named in the will, or nominated by a court if there is no will and a suitable person cannot be agreed. Although the tax is paid on the Estate, the Estate cannot be immediately touched and so payment must be made on behalf of the estate. Money can later be reimbursed from the estate.
Valuation of the deceased’s Estate is carried out by the personal representative who must calculate to total value of all belongings against the debts of the deceased. The money left after the payment of outstanding debts will be taxable if it exceeds £325’000.
The Tax must be paid within 6 months of the end of the month in which the deceased passed away. If you gave trouble paying you must contact the Tax Office immediately. Tax on land and buildings can be paid in instalments over several years, in which case it is only the first instalment that must be paid within 6 months. See related articles for advice should you have trouble making the instalments.