In England and Wales, Inheritance Tax typically has to be paid when an individual’s estate (their property, finances and belongings) is worth more than £325,000 at the time of their death.
The £325,000 figure is the current Inheritance Tax threshold, but it’s subject to change each year in the budget.
The current Inheritance Tax rate in England and Wales is 40% on anything above the £325,000 threshold, although it can be reduced to 36% if 10% or more of the estate’s net value is left as a gift to charity.
A further £175,000 tax free allowance may be available with the residence nil rate band. This is a relatively new Inheritance Tax allowance which reduces Inheritance Tax liability on an estate when a home is being passed down to children or grandchildren.
If the person who died owned their home in their sole name, the whole of the home will be included in the estate value. If they owned their home with someone else and they owned an identifiable share, only the value of their share will be included in their estate.
The more valuable the home is, the more likely it is that there will be Inheritance Tax to pay.
What does probate have to do with Inheritance Tax?
Part of the probate process is to get the grant of representation, which confirms the legal authority to administer the estate. However, before this can be done, it is necessary to value the entire estate of the deceased, and to calculate any Inheritance Tax due.
If you overcalculate Inheritance Tax yourself during probate, you risk the estate paying more to HMRC than is needed. Alternatively, if you undercalculate how much Inheritance Tax needs to be paid, then you can be held personally financially liable for this.
The correct Inheritance Tax forms must be obtained, completed and submitted to HMRC (HM Customs & Revenue) or the court. As part of the grant of representation application you must show either that you have paid any Inheritance Tax due, or that there is no Inheritance Tax to pay.
What is an excepted estate and what is the excepted estate limit?
An excepted estate means that no Inheritance Tax is due. There are 3 main reasons why an estate would not have to pay Inheritance Tax.
Inheritance Tax is only due if the total value of the estate is over the Inheritance Tax threshold, which is currently £325,000. This is also called the nil rate band and is sometimes referred to as the excepted estate limit. The personal representative must find out the total value of the estate. If this is less than £325,000, Inheritance Tax won’t be due.
This threshold may be higher if the deceased was married and their spouse died before them. This is because married couples can to combine their individual tax free thresholds.
There’s also a residence nil rate band if the home of the person who has died is being left to their children or grandchildren.
Inheritance Tax won’t be due if the deceased leaves everything to a surviving spouse or a charity. This is called an exempt estate.
If the deceased was living abroad, Inheritance Tax might not be due in England and Wales. A ‘foreign domiciliary’ means that he/she lived abroad on a permanent basis, died abroad, and held few assets in the UK.
Gifted property and Inheritance Tax explained
If the person who died transferred the ownership of their home to another person before they died, then Inheritance Tax may still be payable on it. It will depend on who the property was gifted to, how long before the death this happened, whether they continued living there after gifting it and how much the overall estate is worth.
Certain beneficiaries are exempt from Inheritance Tax, and this exemption also applies to lifetime gifts. If the person gifted their property to their spouse or civil partner, no Inheritance Tax would be payable. The same
If Inheritance Tax is payable
The grant of representation will not usually be issued until the Inheritance Tax (IHT) has been paid to HMRC. This can potentially cause a delay in the administration of the estate.
You will normally be expected to pay 10% of the tax due on the value of property and shares plus all of the tax due in respect of the rest of the estate. This tax payment should be made within six months of death, with the additional tax in respect of the property and shares payable in yearly instalments over a ten-year period, or as soon as they are sold. Interest will start to accrue on any outstanding Inheritance Tax after six months from the date of death.
If it comes to light that there are further assets in the estate, or the value of the estate has not been correctly stated, it may be necessary to provide HMRC with a corrective account and pay any additional tax due, or reclaim any tax that was overpaid.
How to pay Inheritance Tax
Before you can pay the Inheritance Tax bill, you will need to get a reference number from HMRC. Then you can then pay HMRC either directly from the estate or from your own funds and claim it back from the estate.
Raising the money to pay the Inheritance Tax bill may mean selling some of the assets in the estate. If there is no cash in the estate, you can arrange to pay the tax in instalments, but interest will be due on outstanding tax.
If you don’t know exactly how much Inheritance Tax is owed (if, for example, you are waiting on a property sale to determine the full estate value) you can make payments on account before finding out the precise figure.
HMRC will not send out individual receipts for each payment made, they will only send a “clearance letter” once the entire bill has been paid (along with any interest). The best way to keep track of payments is to keep a record of these.
When someone dies, if they have left a valid will, this sets out how their estate should be divided.
If the deceased has not left a will and has died intestate, then inheritance rules called to rules of intestacy will determine who is entitled to inherit from the estate.
If you are responsible for an estate without a will, you must follow the rules of intestacy when distributing the estate.
When someone dies without a valid will there are strict inheritance laws, often referred to as the rules of intestacy, which apply in England and Wales.
The rules of intestacy don’t allow for modern family relationships. For example, they make no provision for unmarried and unregistered partners. This means that on intestacy, the surviving partner will not automatically inherit any of the property and possessions owned in the sole name of the deceased. However, a partner can often make a valid inheritance claim instead, or the family can legally vary the distribution on intestacy to provide for the partner.
The rules of intestacy also only recognise natural and adopted children for the purpose of inheritance; they do not acknowledge step children. However, in many cases step children can often have a valid claim.
Under the rules of intestacy, the estate will be divided between their relatives in a certain way.
If the person who died was married or in a civil partnership and has no children, all of their estate will go to their spouse or civil partner.
If the person who died was married or in a civil relationship but does have children, the first £322,000 of their estate will go to their spouse or civil partner, along with any of their personal possessions. Anything over £322,000 will then be divided, with the spouse or civil partner receiving 50% of this and the children entitled to divide the other 50% between them.
If the person who died wasn’t married or in a civil partnership, but was living with their long term partner, this partner will not be entitled to receive anything. Cohabiting partners and long term partners are not protected under the rules of intestacy. The law does not recognise the concept of a ‘common law marriage’.
If the person who died wasn’t married or in a civil partnership, but does have children, the whole estate will go to them. If there are no children, then the estate could go to the parents, siblings or other relatives.
It is important to note that jointly held assets may not pass under the rules of intestacy but instead pass to the surviving joint owner. This is the case where a house is owned with someone else as ‘joint tenants’ or there’s a joint bank account. It works differently for property owned jointly as ‘tenants in common’ though. For more information, see joint tenants and tenants in common.
The only way to make it absolutely clear who should inherit your property and possessions after you pass away is by making a will.
When an adult person with assets, such as property, money and possessions, dies without a valid will they are said to have died intestate. In these circumstances the rules of intestacy will apply and these rules determine who will administer, and who benefits from, the deceased’s estate.
In these circumstances, before it can be determined who the beneficiaries are, the first step is to establish who should be administering the estate.
When identifying estate administrators and beneficiaries, great care should be taken to avoid mistakes. An estate administrator can be held personally financially liable for any loss resulting from a breach of their duty, even if mistakes were genuine errors.
This is where our probate and estate administration expertise has been invaluable for thousands of our customers across England and Wales.
Partial intestacy is when the terms of the will don’t actually deal with the whole of estate. This can happen if the will hasn’t been properly drafted.
With partial intestacy, some assets are dealt with under the will, but other assets are dealt with in accordance with the rules of intestacy. This could happen if the will doesn’t say what should happen to the rest of the estate after all the other gifts have been dealt with. Another example of when a partial intestacy might occur is if all of the beneficiaries named in the will have already died and no substitutes have been named.
How long does probate take without a will?
In England and Wales, the amount of time it takes to go through probate is the same, regardless of whether or not the deceased left a will.
How soon do I have to apply for probate?
In England & Wales there are no time limits when applying for probate or settling an estate. There is also no definitive time when the probate process must be started after death. But you might not be able to deal with your loved one’s affairs until you’ve got a grant of probate, so you might not want to delay for too long.
Additionally as the executor or administrator of the estate, you need to act in the best interests of the beneficiaries. If you delay for too long, they will be within their rights to question this.
There are time limits and deadlines though when it comes to Inheritance Tax and there are some essential things that will need to be done straight away when someone dies. These include making sure that any property is secure and adequately insured and notifying the Department for Work and Pensions (DWP) of the death, so that any benefits are stopped.
Time limit for Inheritance Tax
If the short Inheritance Tax Return (Form IHT205) is used because there’s no Inheritance Tax to pay, there is no deadline to submit the form. However, if the long Inheritance Tax Return (Form IHT400) is used then it must be submitted within a year of the death.
If Inheritance Tax is payable, it must be paid within six months of the death. If this six month deadline isn’t met, there could be additional interest or financial penalties.
Again, if you are the executor or administrator of the estate, failing to submit an inheritance tax return in time could prompt the beneficiaries to complain. Beneficiaries can even ask a court to remove an executor from their role.
How long after paying Inheritance Tax will probate be granted?
Once the Inheritance Tax has been paid, HM Revenue & Customs will issue a receipt for this within 4 to 6 weeks. This will need to be sent to the Probate Registry along with the application for the grant of representation. Providing there are no issues with the application, the grant of representation will usually be issued 2 to 3 weeks later.
How long after a person dies will beneficiaries be notified?
Beneficiaries of an estate should be contacted and notified of their inheritance soon after the death. This responsibility lies with the executor or administrator of the estate.
Under the law of England and Wales, there is no specified timeframe for the beneficiaries to be notified, but it should happen early on in the probate process. If a beneficiary is missing or cannot be contacted for any reason then this will inevitably delay the time it takes for them to be notified.
Timeframes for probate
Every estate is different and can take a different length of time to administer depending on its complexity. There is a general expectation that an executor or administrator should try to complete the estate administration within a year of the death, and this is referred to as the executor’s year. There are numerous reasons why an estate may take longer than a year to administer though, including complex Inheritance Tax situations, lengthy property sales or missing beneficiaries.
As every estate is different, your case manager will keep you updated and inform you of the likely timescales to carry out the administration of the estate. Below is an outline of the typical timeframes for administering an estate without complex affairs:
Month 1
Starting your case
On receipt of your case, your case manager will carry out a detailed legal review of the estate to clarify the issues that will need addressing in order to apply for the grant of representation. They’ll let you know if they need anything else from you before we start valuing assets and liabilities in the estate to get a grant of representation.
Months 3 to 6
Applying for the grant of representation
To apply for the grant of representation it is necessary to have:
Typically, it takes three to six months to complete all the necessary legal, tax and administration work, submit the application and receive the grant of representation from the court.
Months 6 to 9
Interim distributions to the beneficiaries
Once the grant of representation has been received it can be sent to the bank. After the bank has received all the necessary documents, the money in the accounts will usually be released within 10 to 15 working days.
Once the grant of representation has been received, adverts are placed in the London Gazette and a local paper. These adverts have a two month notice period within which creditors of the estate can claim for any debts. This significantly reduces the risk of future claims by creditors against the estate or we can help you with protecting yourself and the beneficiaries through insurance cover.
After this period, provided we have funds available and no outstanding debts, it is usually possible to distribute some of the estate to the beneficiaries.
Months 9 to 12
Final distributions to the beneficiaries
Claims can still be made against the estate in the six months following the receipt of the grant of representation by anyone who believes they are entitled to benefit. It is important to ensure that all potential claims on the estate are resolved before the final distributions are made.
Assuming that there are no claims and everything proceeds smoothly, we can usually finalise all the legal, tax and administration work and distribute the rest of the estate to the beneficiaries within 9-12 months.
When cases may finish sooner
Because every estate is different, the above timescales are just estimates based on our experience of dealing with many thousands of estates over the years. Your case manager will be happy to give you a more specific time estimate based on the facts of your case.
The good news is that, if the circumstances of the estate are straightforward, we may be able to accelerate certain aspects of the work (such as the application for the grant of representation) and finish the estate administration sooner than we have said above. This might happen if, for example, there is no property in the estate, or if there is a property and it either gets transferred to a beneficiary or sells very quickly.
How long do people have to make a claim on an estate?
If someone wants to make a claim on a deceased person’s estate, they only have a limited time to do so. The deadline to make a claim is 6 months from the grant of representation being issued, though they may be able to apply to the court for an extension.
If the grant of representation hasn’t yet been issued, it’s possible to lodge a caveat at the Probate Registry. This will prevent the grant from being issued and, in turn, prevent any payments from being made out of the estate while the claim is being investigated. A caveat can remain in place for up to 6 months.
Under the Inheritance (Provision for Family and Dependents) Act 1975, certain individuals can make a claim against the estate for “reasonable financial provision”. These individuals include the spouse, former spouse or a child of the person who died. This is called contentious probate.