How much inheritance tax is due? Your questions answered.

How to factor in lifetime gifts and exemptions when calculating taxes

Benjamin Franklin once said that the only two certainties in life were “death and taxes”. And if you have been appointed liquidator of the estate of a loved one after their death, you will quickly learn about the taxes that are due. In an age when you are performing an overwhelming number of complicated tasks, it is important for executors to know what taxes are owed and who is required to pay them.

As a trusted personal law firm, we have helped many clients address their concerns about taxes payable on the estate of a deceased person as it is essential that these are calculated and taken. into account before payment of the beneficiaries’ inheritance.

Inheritance tax on inheritance

The main tax to be aware of is the inheritance tax, which is a percentage of the entire estate that must be paid. Some of the laws surrounding the payment of inheritance tax (IHT) can be complex and technical, and a lawyer can offer clear and practical advice on calculating and paying the IHT.

The good news is that the IHT is not payable on all estates. As a rule, it is only due if the total value of the deceased’s property exceeds £ 325,000. This means that the first £ 325,000 is exempt from inheritance tax, but any assets exceeding that value will be subject to 40% IHT. However, there are a few key exceptions to this rule that you should be aware of and here we outline the main ones:

Assets transferred to the surviving spouse or civil partner of the deceased are exempt from inheritance tax, regardless of their total value;

If the deceased had a spouse or civil partner who died before them, their unused inheritance tax allowance may be available, meaning the threshold increases to a maximum of £ 650,000;

All assets transferred to a registered charity are exempt from inheritance tax, again regardless of value;

If the deceased’s property is left to a direct descendant, an additional zero-rate residency tranche applies. It’s currently £ 175,000, or £ 350,000 for a couple.

It is not only the assets that a loved one owned at the time of death that can be submitted to the IHT. You should keep in mind that it may also be payable on donations made by the deceased in the seven years preceding his death. The value of those gifts needs to be added to the value of the estate to see if it pushes it past the threshold. Exceptions to this rule include small gifts (such as birthday gifts) which can be treated as “exempt gifts”, as well as gifts given to a spouse or civil partner.

Additionally, if someone has transferred property or items for less than their actual market value (for example, selling a property to a family member for less than its value), the difference in value is treated as a gift. for the purposes of the IHT. However, the amount of tax payable on a lifetime donation depends on the length of time before the donation dies, and this decreases over time.

Executors should be aware that inheritance tax must be paid within six months of death, otherwise interest will be charged, increasing the amount owed. This means that they will have to start working quickly and especially by the time when many companies are working remotely everything can take longer to process than usual.

The estate may also be subject to income tax on any income earned during the period of administration, and capital gains tax on assets sold by executors. The executor will also have to ensure that all taxes owed by the deceased person before his death have been paid.

With complex legal processes and timing being essential, executors often feel stressed and overwhelmed. However, by getting in touch with an experienced enforcement lawyer in good time, they can take a lot of the pressure off and get the help and advice they need.

Gibson Kerr Personal Law Partner, Lindsay Maclean is a trusted expert in this field, having been appointed Regional Director of the Scottish Branch of Elderly Lawyers and has helped many through this difficult process. Lindsay and her team are happy to assist you with the process of administering an estate, including calculating and paying any taxes owed. To contact us, please call 0131 202 7516, email [email protected] or visit for more information.

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