What is Inheritance Tax?
When someone passes away, inheritance tax is something which is applied to their estate.
Inheritance tax (or the potential of it), is another reason why it is important to detail your wishes and also list any beneficiaries in your will. Every person has an allowance, or tax threshold, of £325,000.
Your estate won’t have to pay inheritance tax if:
- the value of your estate is below the £325,000 threshold.
- you leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club, for example
Please note: if a loved one has passed away and their estate is under the threshold, you will still need to report it to HMRC.
If you don’t have a Will, your inheritance tax will be calculated and paid by the administrator. It can be paid from funds of the estate or by the sale of assets in the estate. Alternatively, if you do have a Will, it is usually the executor who will handle the payment and again, funds can be used to pay from the estate. Once all the tax and debts are paid, the executor or administrator can distribute what remains of the estate.