There are several taxes that a person has to pay to Her Majesty’s Revenue and Customs. While many taxes are in the public’s knowledge some are not. One of the relatively least known taxes is inheritance tax. If you don’t know about a tax you may end up not paying it, which could put you at a risk of fines and penalties. This article is a guide for people who know relatively little about inheritance tax.
What is Inheritance Tax?
Inheritance tax as the name suggests is tax which is applied on estate and property of a person who has died. There are three categories that a dead person’s estate is divided into and all three of the following have inheritance tax:
Property (land, etc.)
There are three exceptions where inheritance tax does not apply on a deceased person’s estate. These include:
The estate has been left to the person’s civil partner or spouse
The estate is valued under a threshold of £325,000
The estate has been left to an amateur community sports club or to a charity organization
Who Should Pay the Tax?
Tax that is payable on inheritance is normally paid for by estate that was left. If the person has not left enough cash behind to make the payment, the payment is made using the cash which is raised from the sale of the deceased assets. In some cases, albeit sparingly, there are instances where because the deceased had no cash on the estate, they may use a life insurance policy that they may have arranged specifically to cover the costs of inheritance.
The government does not automatically deduct the tax. If the person who has died has left a will, the executor of the will, whoever that may be will arrange to pay the taxes. If there was no will, the court appointed administrator of the will has to do the same job.
Is there a Time Period for the Tax to be paid?
Yes, there is a time period under which the inheritance tax needs to be paid. If the tax is not paid within the set time period, the HMRC will start to charge an interest rate on the tax. The designated period for payment of the tax is six months.
However the six months deadline is not set in stone. The HMRC recognizes that there are certain situations which are beyond a person’s control. In such times, the HMRC can give the executor more time to pay the tax bill as long as the executor has asked for an extension and has a genuine need. Unfortunately, even in a situation where they have been permitted to take their time, they will be charged an interest rate for late payment.
A better way to deal with this situation is to pay some of the inheritance tax even before the property has been properly valuated. In that case the HMRC will take time before charging interest rate. In some cases the executor can also make the payments from their own account and claim that money from the estate which is completely legal.