When & Who pays inheritance tax?

Inheritance tax that becomes due on money or possessions passed on when you die is usually paid from your estate, however if the tax is due on gifts you made during the last seven years before your death, the people who received the gifts must pay the tax due.
If they cannot or will not pay, the amount due then comes out of your estate.

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Is inheritance tax payable?

Once the whole estate has been evaluated properly any inheritance tax must be paid before anyone applies for the grant of representation.

The IHT may be payable directly from the deceased’s estate. If they have the following:

  • National savings account
  • Building society account
  • Some banks may also cover IHT

If you wish to pay this from deceased’s sole name bank account or building society account then you will need to complete the IHT423 form from the HMRC. First of all you will need to obtain a tax reference for the estate and then send the IHT423 to the appropriate bank or building society. From there they will pay the HMRC directly.

Changes to the amount of inheritance tax

After the grant has been given out the HMRC can still question certain assets which could change the IHT liabilities. As well, if the deceased’s administrator/executor’s find any more assets after applying for probate they must let the HMRC know as soon as possible. This again could change IHT prices.

Once all IHT has been settled the administrator/executor’s can then apply for a ‘Clearance Certificate’ by completing the IHT30. This stops the liability of any further IHT from the administrator/executor’s. Two copies completed and signed by all administrator/executor’s are required by the HMRC. One copy will then be sent back to certify no further IHT applies. The estate can now be distributed, however, if further assets come to light these will to need to be reported to HMRC.