Planning inheritance tax (IHT) is something we all need to consider at some point in our lives, and there are generally 6 key steps to the process:
Step One:
Families should first seek professional advice, as inheritance tax planning can be a complex process. We at Aston Shaw can work alongside solicitors to migrate the IHT liability, a will is then created that takes into account their liability.
Step Two:
When a member of the family dies leaving an estate, it is usual for the estate to pass to a spouse free of inheritance tax, though this isn’t always the case. When the surviving spouse dies, the estate will pass to other beneficiaries (if this is written in your will). If those beneficiaries are direct descendants, then they will benefit from the recently introduced family home allowance, as well as the allowances from both the spouses.
Step Three:
When someone dies and you are their executor, if the estate is worth more than £325,000 you will have to fill out a number of forms in order to obtain probate.
The following forms need to be sent with the will and death certificate:
- PA1
- IHT421
You may also need to fill out a IHT400 form for HM Revenue & Customs if there is inheritance tax to pay. The IHT400 form requires an inventory of the entire estate.
Step Four:
Inheritance tax is payable six months from the end of the month in which the deceased dies and interest will be charged on unpaid tax after that date. IHT needs to be paid before the grant is received and therefore before it’s possible to draw in all the assets of the estate.
Step Five:
There are many different ways to pay inheritance tax. The money can be taken out of the estate directly or alternatively it can be lent by a beneficiary or even a bank or building society. The latter option would need to be setup as a loan. On certain types of assets such as houses, business, farmland and woodland, it is possible to pay IHT installments spread over the course of 10 years.
Step Six:
A letter from HM Revenue & Customs should then be received, stating that the tax has been paid and the the estate can now be distributed.
For professional advice on inheritance tax planning, contact Philip Hunt on 01603 616300 or email philip.hunt@astonshaw.co.uk.
