What Is Inheritance Tax-Tax Rate, Threshold, Forms & Who Pays It?

by Vidit Agarwal Marketing Director

What Is Inheritance Tax?

Inheritance tax is a tax paid on the estate (money, possessions and the property) left by someone who has died. An individual need to make list of all the assets inherited then find out the total worth of estate at the time of person’s death and deduct liabilities and expenses from that value to find out the value on which inheritance tax would be payable. If the value of the estate is going over the inheritance tax allowance or threshold limit an individual needs to pay inheritance tax to HMRC by the end of the sixth month after person’s death, if IHT not paid on time HMRC will start charging interest.

No Inheritance Tax Liability If:

Inherited estate value is below the threshold limit £325,000
You leaving everything to your spouse, charity or a civil partner

If your estate worth below inheritance tax-free allowance, you can transfer unused threshold to your partner if you are in civil partnership or married. This allows you to have a combined IHT personal allowance up to £630,000.An individual is liable to pay standard IHT which is 40% on the value of the estate above threshold limit £325,000 when someone has died.

HMRC Inheritance Tax- Who Pays It?

Funds from the estates or the money rose from the sale of the assets of the deceased person are used to pay IHT. IHT need to be paid before it can be passed on to beneficiaries.

If there is a will, executor (who is dealing with the estate) is responsible to pay IHT.
If there is no will, a person is appointed by a court that is made responsible for estate of deceased person is known as administrator.
A person has receive gifts from someone who’s died need to pay IHT if goods worth more than £325,000 and individual has died within the 7 years.
Normally beneficiaries (a person who inherit estate after someone’s death) are not responsible for IHT but they need to pay tax on income and gains earned through inherited property that is left to them by their loved ones.

Which Inheritance Tax Forms You Need?

After the death of your loved ones, you are burden with inheritance tax return which involves lots of paper work to be done and there are various HMRC IHT forms which need to be completed as a result the process becomes more difficult and complex.

Executor or administrator whoever is liable to pay IHT or responsible for estate will require to obtain probate or grant of representation to have an access to the deceased’s estate.

The HMRC inheritance tax form you need depends on the value of the estate and whether you are liable to pay IHT.

IHT205 form is filled when there is no inheritance tax liability, individual can also use this form if entire threshold is passed on to charity or the civil partner or spouse of the person who has died. An individual in Scotland can fill form C1 instead of IHT 205 form. If individual who have died lives abroad IHT207 form can fill in its place if he/she permanently lives abroad and cash & bank balance is less than £150,000 in UK assets. To deduct anything from inheritance tax IHT400 form is filled. Please note Inheritance tax reference number is required before IHT400 form is submitted to HRMC; to get reference no. you need to fill IHT422 form. If deduction on IHT is qualify as agriculture relief fill form IHT414 or if as a heritage asset fill form IHT420. You can claim idle unused IHT threshold left by previous deceased spouse or civil partner by filling form IHT402.