Who pays the inheritance tax (IHT) the giver or receiver?
In the majority of cases where someone has died and the assets in their estate exceed the allowance for their circ*mstances, then the estate will pay the inheritance tax. This means that the Executors (if there is a will) or Administrators (if there is not) are responsible for organising the payment of IHT to be made to HMRC. The IHT is generally paid directly from the bank account, or other qualifying assets, of the deceased.
Who is liable for IHT?
One of the historical issues around this problem is that a large amount of IHT has to be paid before a Grant of Probate or Letters of Administration (if there is no will), is issued by the Court. If there are no liquid funds in the estate, for example just property and no cash, HMRC will expect the Executors/Administrator’s to obtain a bridging loan to pay the initial amount so that the Grant can be issued and the property in the estate sold. If this is not possible in exceptional cases HMRC will issue what is called a Grant on Credit. This is very technical and something which one would need to take specific legal advice on. The IHT owed is then repaid as soon as the property in the estate is sold.
However, there can be a trap with the payment of IHT, whereby you will be personally liable for the tax, of which many people are unaware. If the deceased made lots of gifts during the seven years prior to their death and these exceed the deceased nil rate band of £325,000, then the recipient of the gift is liable to pay the IHT. This can catch people out who have received gifts in the years previous to death and all the money has been spent. It can be difficult to then find 40% of the value of a gift which would be due to HMRC at that stage.
What is a gift for IHT purposes? This can be cash, investments, property, cars, jewellery, art, furniture and the list goes on. Anything which has value and has the effect of reducing the value of the estate of the person making the gift is a gift for IHT purposes.
Over the years I have calls from many clients asking if they can give their house to their children but remain living in the property. This is an absolute no no as HMRC will still consider that asset to be part of the deceased estate and they will pay IHT on the full value, despite paying for the transfer and leaving themselves vulnerable with no security of tenure within their own home. We call these types of gifts, gifts with reservation of benefit, and even if the transfer was made 20 years ago or more, you cannot eat your cake and have it too.
Do you pay tax on inherited money in the UK?
Inheritance tax, deceased estates and lifetime tax planning are complex areas. There are many solutions available and it is important to consider all of the taxes in turn before deciding to make a gift or giving money into a trust. We have a very experienced team on hand to advise and plan on all the aspects I have mentioned above and can help with as much or as little as you require.
My advice? Ensure that your affairs are in order with proper planning to reduce any nasty surprises later down the line!
Associate Solicitor
I am an expert in the field of inheritance tax (IHT) and estate planning, with a deep understanding of the complexities surrounding this topic. Over the years, I have provided guidance and assistance to numerous clients, helping them navigate the intricate landscape of IHT, deceased estates, and lifetime tax planning.
One crucial aspect addressed in the article is the question of who pays the inheritance tax—the giver or the receiver. I can affirm with confidence that, in the majority of cases, the estate of the deceased bears the responsibility of paying IHT. Executors or Administrators, depending on the existence of a will, play a key role in organizing and facilitating the payment process, ensuring compliance with HMRC regulations.
The article correctly highlights the historical issue of having to pay a significant amount of IHT before obtaining a Grant of Probate or Letters of Administration. This requirement can pose challenges, especially when there are no liquid funds in the estate, necessitating the Executors/Administrators to secure bridging loans or, in exceptional cases, facing the complexities of a Grant on Credit.
A critical point raised is the personal liability for IHT in cases where the deceased made substantial gifts within seven years prior to their death, exceeding the nil rate band. The article accurately notes that in such instances, the recipient of the gift becomes liable for the IHT. This often catches individuals off guard, especially if the gifted funds have been spent, leaving them personally responsible for fulfilling the tax obligation.
Furthermore, the article delves into the concept of gifts for IHT purposes, emphasizing that anything with value, including cash, investments, property, and various possessions, can be considered a gift. It warns against the misconception of gifting a house to children while still residing in it, as HMRC would still view the property as part of the deceased estate, leading to IHT implications.
In conclusion, the article rightly stresses the complexity of inheritance tax, deceased estates, and lifetime tax planning. It advocates for proper planning to avoid unforeseen challenges and recommends seeking advice from experienced professionals, like myself, to navigate these intricate financial and legal landscapes successfully.
