Inheritance Tax and Probate Explained

Nadia Rimmer
Nadia Morgan
Associate Solicitor Advocate

When a loved one dies it can take a huge emotional toll on your life. The added legal stress you can face during this time can be difficult to work through, but knowing what complicated terms mean can help you understand more about the Probate process.

Inheritance Tax can be payable in England and Wales on the Estate of someone who passed away leaving an Estate with a value of £325,000 or more. Their Estate includes all of their property, possessions and money. Some Estates may not need to pay any Inheritance Tax if they apply for an exemption, such as a spouse, charity, agricultural or business exemption.

How is Inheritance Tax Calculated?

The deceased person’s assets will be valued and any debts or bills will be deducted before the final Estate value is calculated. It’s very important that the valuations on property and other assets are carried out by professionals and that you have records of everything for HM Revenue and Customs (HMRC).

A simple mistake or oversight can have big consequences, which is one of the reasons why many people choose to instruct our Probate Solicitors to deal with HMRC and the Estate accounts on their behalf.

What is the Nil Rate Band?

The Nil Rate Band (NRB) is used to calculate how much, if any, Inheritance Tax you will need to pay from the deceased persons Estate. Since April 2010, each person has a tax free inheritance tax allowance of £325,000. If the Estate is over £325,000 Inheritance Tax  can be payable. HMRC has reported that only 4-5% of Estates actually pay Inheritance Tax, and the tax is paid by the Estate and not by the beneficiaries named in the Will.

For anyone who died on or after the 9th October 2007 with a spouse or civil partner can transfer any remaining NRB to their partner.

In addition to the Nil Rate Band, an Estate may also benefit from a Residential Nil Rate Band where the Estate includes a main residence that is being passed to direct descendants such as a spouse, children or grandchildren. For the tax year 2021-2022, each person has a Residential Nil Rate Band allowance of £175,000.

Who is Responsible for Paying Inheritance Tax?

The Executor or Administrator of the Will is responsible for paying any Inheritance Tax. They can do this by using money from the Estate or through selling Estate assets. But, a lot of Inheritance Tax is paid through a Direct Payment Scheme, which is using money from the deceased person’s bank account. You can do this by speaking to the bank or building society and gaining access to their account as a Personal Representative. We can help you with this as a part of our Full Probate Service.

When to Pay Inheritance Tax?

You must pay Inheritance Tax by the end of the sixth month after the person died.

You can arrange to pay in instalments over a period of time, but you will pay interest on any outstanding amount after the 6 months. Even if the valuation of the Estate hasn’t finished, it’s best to still pay at least some of the Inheritance Tax before the 6 month deadline. HMRC can reimburse you if they find that they’ve overcharged of overestimated how much Inheritance Tax was due on the Estate.

How Simpson Millar Can Help You

We offer free initial legal advice and will be happy to discuss your situation with you.

Our Probate Solicitors can do as little or as much of the work required on your behalf. We can just apply for the Grant of Probate or, with our Full Probate Service we can provide comprehensive legal advice, deal with the Inheritance Tax, Income Tax and Capital Gains Tax matters, prepare full Estate accounts and correspond with all the beneficiaries.

In most cases our Probate Solicitor fees are paid by the Estate and not by the Executor or Administrator of the Estate.

See Case Study: Probate Solicitor Saves Client £117,500 Inheritance Tax on Estate

For free legal advice call our Probate Solicitors

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