When Does Inheritance Tax Need to be Paid During the Probate Process?

Written by Rachel Darraugh

If you have been made responsible for administering an estate after a death, you might be concerned about the prospect of inheritance tax. In actual fact, inheritance tax is only payable on a small minority of estates, so most personal representatives won’t be facing the prospect of making a payment of this kind.

However, even if the estate you are responsible for is valued below the current inheritance tax threshold, you’ll likely still need to be aware of the process. 

When will you need to assess if inheritance tax is due?

It is the responsibility of the personal representatives to determine whether any inheritance tax will be due on an estate. This is done during the first stage of the winding up process, when it is necessary to assess and value all the assets that are held by the estate. 

Once you have estimated a final total value, this will give you a good idea of whether or not inheritance tax is due. The government have an online tool that can help you determine this. 

Generally speaking, no inheritance tax will be due if the estate:

• Has a total value of less than £325,000.
• Is worth more than £325,000 but leaves everything over the value of this threshold to a spouse or civil partner.
• Is worth more than £325,000 but is subject to an additional £175,000 nil rate band due to the person who has died leaving their home to their children or grandchildren.
• Has a total value of less than £650,000 and is subject to an additional unused £325,000 threshold from a spouse or civil partner who died first.

If you believe that an inheritance tax bill will be due on the estate, you will need to complete HMRC’s inheritance tax forms and report the full value of the estate.

It may still be necessary to report the full value of the estate even if you don’t expect there to be any inheritance tax to pay. There are various reasons why you might need to do this. You can find a full list of situations where this might apply here. 

When does the inheritance tax form need need to be submitted?

If you are required to complete an inheritance tax form for an estate, you will need to do this within twelve months of the death. If you don’t submit the form in this timeframe, it’s likely that you will be subject to a financial penalty.

However, though technically you have a full twelve months to submit an inheritance tax form, the full picture is not quite as simple as this. 

It’s important to note that you will need to submit an inheritance tax form before you can apply for a Grant of Probate (if one is needed). This means that you are unlikely to be able to get any further with winding up an estate until you have submitted an inheritance tax form.

There is also the matter of actually paying the bill. Though – once again – you technically have a full year to submit the inheritance tax forms, in reality the balance of any tax bill will come due at the end of the sixth month after the person died. If the full balance of the tax bill isn’t paid by the end of this six-month period, the bill will start accruing interest. In other words, if you wish to avoid paying any interest on the tax bill, you will actually need to submit the inheritance tax form and determine the amount of tax that’s due within six months rather than twelve. 

When will the balance be due?

As mentioned above, if there is inheritance tax payable on an estate, the balance will come due at the end of the sixth month after the death. For instance, if an individual was to die in mid-December, the inheritance tax payment on their estate would come due on the 30th June. 

Unfortunately, six months is often not long enough for the personal representatives of an estate to have fully assessed that estate and to have applied for – and been issued with – a grant of representation. If the grant has not been issued, the personal representatives may not have access any bank accounts belonging to the estate. This can cause an issue for making the payment. This six-month timeframe can also cause difficulties for personal representatives who need to sell property belonging to an estate in order to cover the cost of an inheritance tax bill.

In situations like these, there are various options for managing the payment, including arranging with HMRC to pay the bill in instalments. We’ve written about these options in more detail here. 

Where to find support

Administering an estate and managing an inheritance tax bill on behalf of someone who has died can be a complex task. Luckily, you don’t need to handle it all yourself. 

If you need some support to determine whether any inheritance tax is due, or when and how it will need to be paid, we can help. Our experienced solicitors are always on hand to advise on matters such as these. Why not get in touch today to find out how we can help you?

FAQs

How do you know whether any inheritance tax is due on an estate?

In order to determine whether any inheritance tax is due, you will need to assess the full value of the estate. You will also need to find out about the current inheritance tax threshold, and any other allowances or exceptions that might apply to the estate. 

When do you need to submit inheritance tax forms to HMRC?

It is not always necessary to submit inheritance tax forms to HMRC when administering an estate. However, you will need to do this if there is inheritance tax to pay on the estate, or if there is another reason why you need to report the full value of the estate to HMRC. If you do need to submit an inheritance tax form, you will need to do this within twelve months of the death. 

When will the inheritance tax payment be due on an estate?

If any inheritance tax is due on estate, it will need to be paid by the end of the sixth month after the person died. For example, if someone died on 10th January, any inheritance tax on their estate would come due on 31st July. After this point, interest will start to accrue on any outstanding balance. 

Which parts of the probate process need to be completed before an inheritance tax bill can be paid?

Before you can pay an inheritance tax bill, you will need to fully assess and value the estate. You will also need to submit an inheritance tax form to HMRC. Depending on the make-up of the estate, it may also be necessary to apply for and be granted probate, and to sell certain assets such as property.