You may be aware that when an estate is large enough to surpass the inheritance tax threshold; then inheritance tax needs to be paid to HMRC. You may also be aware that the Executor of the estate needs to arrange for the payment of the inheritance tax that is due.
However, what you may not be aware of is that the Executor is personally liable for the inheritance tax due for the estate of the deceased. Even if the beneficiaries agree to pay the inheritance tax out of their share of their inheritance instead of the Executor paying it directly. The Executor is the one that will be held liable for the payment if the beneficiaries fail to make it.
Executor’s Responsibility
As we have outlined above, the buck literally stops with the Executor. Because the Executor will be held liable for any unpaid inheritance tax, it is important that the valuation of the estate is not only accurate but that it is done promptly. Once the valuation has been done, the amount of inheritance tax that is due can be calculated.
When is Inheritance Tax Due?
Inheritance Tax must be paid by the end of the six month after the deceased has passed on.
What do you need to pay Inheritance Tax?
In order to pay an inheritance tax bill, you will need a payment reference number. The payment reference number must be obtained at least three weeks before you are going to make a payment, so make sure that you plan ahead.
You can apply for a payment reference number online, unless it is for a trust, or by posting the IHT422 form (application for an Inheritance Tax reference). Once you have the payment reference number, you will be able to pay the inheritance tax bill.
Ways of Paying Inheritance Tax
There are a wide range of ways that you can pay an inheritance tax bill. It can be paid using online or telephone banking as well as by CHAPS or BACS. The HMRC account details can be found here. If you are planning to use this method of paying an inheritance tax bill, then you will need to include your payment reference number as the payment reference.
When paying by CHAPS, payments will normally reach the HMRC account of the same working day. Using online or telephone banking, payments will generally be received on the next working day. BACS payments normally take 3 working days to process. Payments can also be made from overseas.
You can also pay an inheritance tax bill at your bank or building society from your own bank account or from a joint account if you held a joint account with the deceased. Any payments that you make towards an inheritance tax bill from your own account can be claimed back from the estate of the deceased.
You can also make payment by cheque, by using British government stock or by transferring national heritage property, but these are much less common methods.
What if things are taking too long to sell?
There is the option of paying inheritance tax by yearly instalments for those who will struggle to pay the inheritance tax bill because assets are taking too long to sell. When you apply for your payment reference number, you must select the pay in instalments option on the form. You will normally have to pay interest on the instalments too, but it may be the best solution if you or the estate do not have the ready cash to meet the inheritance tax obligations of the estate.
Need help with your Will? Contact us today to see how we can help.
