IHT is payable within 6 months, from the end of the month in which a person has died. If an Executor fails to pay the Inheritance Tax during this time period, then interest becomes accrued. If the Executors are having difficulties in securing the monies to pay the due IHT, they can make monthly payments to HMRC on account of full payments.
IHT becomes available when somebody dies, and their Estate is over £325,000 (April 2017).
The tax payable is 40% above the Nil Rate Band (£325,000). This reduces to 36%, if more than 10% of the Estate is given to a charity.
There are ways, during your lifetime, that you can seek to reduce your Inheritance Tax liability, so that more of your Estate goes to those loved ones left behind.
1.) If you are married or in a civil partnership, your Estate will sweep to your surviving spouse. This means that there is a spousal exemption, and Inheritance Tax is not payable whilst your spouse survives you.
2.) Unused IHT allowance can be transferred between spouses, and this transference happens upon the second of you passing. Note, however, that only the part of the IHT that has not been transferred upon the first person’s death can be used. For example, if your husband or wife or civil partner transferred £100,000 on their death, upon you also passing, your Nil Rate Band would be £550,000, not £650,000.
3.) If, during your lifetime, you make gifts, this can potentially be an exempt transfer. However, you do need to survive these gifts. If you survive a gift for 7 years, there is no IHT payable. Thereafter, there is a tapering affect. If you die within the first 3 years, 100% IHT is payable. Then, after 3-4 years, 80% becomes payable. At 4-5 years, 60% is payable, and so on.
4.) You could also make a £3,000 a year gift. You can carry this forward to the next tax year, and therefore, if no gift was made in the previous year, you can make a one-off gift of £6,000.
5.) Gifts can be made upon marriages, and, depending on whether or not it is to your child or grandchild, will be dependent upon that sum.
We have all heard the headlines that changes are due to come into effect from the 6th April 2017, which eventually, by 2020, will give a residence Nil Rate Band of up to £1,000,000. However, this is a gradual Band. On the 6th April 2017, every person will receive £100,000 Resident Nil Rate Band, only if you leave your property to your children or grandchildren. The total amount of the rise by 2020 will be £175,000, on top of the current Nil Rate Band, and if you are married, this gets you to the million-pound mark.
If you would like further advice on how to protect your Estate, do contact 01953 883535 to book an appointment with one of our solicitors. Dawsons Law also provides advice and assistance on Wills, Probate, and Lasting Powers of Attorney, all for competitive fees, which are transparent.