Inheritance tax is the tax payable to the Inland Revenue on the deceased’s estate (this includes any assets held in trust and gifts made within seven years of death). The Law Department will help you to ascertain the size of the deceased’s estate and calculate accordingly whether any inheritance tax is due on the estate.
We can arrange the valuation of the deceased properties and belongings which form the estate and of which the Inland Revenue should be notified. Inheritance tax only applies to a small percentage of estates in the UK, as most will fall within the nil rate band. The nil rate band from 6th April 2009 – 15th April 2015 is set at £325,000. Estates that are valued at less than £325,000 are exempt from inheritance tax. Estates valued at over £325,000 are taxed at 40% on the amount that is over the nil rate band. Therefore, if an estate is valued at £425,000, inheritance tax will be 40% of £100,000 (£425,000 - £325,00) which will be £40,000.
From 6th April 2012, people who leave 10% or more of their net estate to charity can choose to pay a reduced rate of inheritance tax of 36%.
Inheritance tax (based on the valuation of the entire estate) will need to be paid before the Probate Registry will issue a Grant of Representation. If after the grant has been given a further source of assets is discovered, the executors or administrators have a responsibility to report this to the HMRC.
It is also important to note that for deaths that occur after 9th October 2007, it is possible for spouses or civil partners to transfer their inheritance tax nil rate bands. In practice, this means that if on the death of the first spouse they did not use or only partially used their nil rate band, the remainder of the nil rate band can be transferred to the second spouse to be used on their death. This could potentially raise the second spouse’s nil rate band from £325,000 to a maximum of £650,000.