Do Beneficiaries of a Will Have to Pay Inheritance Tax?

In most cases across England and Wales, Inheritance Tax is usually paid by the Estate of the person who has died, and so the Executor or Administrator of the Estate will be responsible for paying any Inheritance Tax that’s owed. This means that beneficiaries will usually receive their inheritance once all outstanding debts and taxes have been paid by the Estate.

So in most cases as the beneficiary of a Will, you won’t need to pay Inheritance Tax.
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When Does Inheritance Tax Have to be Paid?

Inheritance Tax has to be paid if the total value of an Estate is above the current Inheritance Tax threshold of £325,000. The standard Inheritance Tax rate is 40% and is charged on anything that’s above the £325,000 threshold, but the Inheritance Tax rate will reduce to 36% if a person’s Will bequeaths at least 10% of their Estate to charity.

The total value of a person’s Estate will be based on everything from how much money they have left in the bank and what property they own to investments and high-value possessions.

Am I Exempt from Inheritance Tax if We Were Married?

Any assets left to you by your late spouse or civil partner are exempt from Inheritance Tax. Furthermore, if they did not use all of their Inheritance Tax allowance, this can be passed on to the surviving partner. A person’s Inheritance Tax liability may also fall if the family home is left to their children or grandchildren.

How Do Gifts Affect Inheritance Tax?

A gift is classed as anything that has a value, such as property, possessions, money, or something that loses value after ownership is transferred.

You are allowed to gift £3,000 per year and this does not affect your Inheritance Tax threshold. You are allowed to make small gifts of £250 to several people and also gifts at customary times, for example, birthdays and Christmas. You are also allowed to gift an amount on marriage.

Further, gifts made between spouses or civil partners during their lifetime or on death are exempt from Inheritance Tax, as long as they both permanently reside in the UK.

However, if the deceased has gifted over and above these exemptions in the 7 years before their death, the nil rate band will be affected and the gift will be brought back into the value of the deceased’s estate (taper relief is available).

So while it will typically be the Executor’s responsibility to handle Inheritance Tax matters, if you’re a beneficiary of a Will and are among those who received a gift prior to the deceased’s death that falls into this category, you could be liable to pay Inheritance Tax. It’s also important to note that gifts left in a Will are not necessarily free of Inheritance Tax, it will depend upon the wording of the Will.

Generally speaking, though, unless you’re the Executor or Administrator of a Will, it’s unlikely that you – as a beneficiary – will need to be concerned with Inheritance Tax matters for the Estate. It’s common that any Inheritance Tax, Income Tax or Capital Gains Tax payments to HMRC are paid out of the Estate. However, this could mean the amount you inherit may be lower than you originally expected.

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