Probate & Inheritance Tax

What is Inheritance Tax (IHT) and Probate?

When a person passes away their estate (e.g. money and possessions) needs to be managed. This legal process of managing their estate is known as Probate. The individual who deals with the deceased person’s estate is known as an administrator or executor, such as a solicitor. The estate may also include property, such as the deceased person’s home.

Usually when someone passes away inheritance tax is paid on their estate in line with the Inheritance Tax Act 1984. The executor or representative dealing with the estate will need to provide a value of the estate which is to be submitted to HM Revenue & Customs (HMRC). Inheritance tax may also apply on trusts or if a property is gifted to someone during their lifetime.

 

Are there any exemptions or relief?

Normally there is no Inheritance Tax to paid if either:

– The value of the estate is below the £325,000 threshold

– Everything above the £325,000 threshold is left to a spouse /partner or charity.

Where the property is given to children or grandchildren the threshold can be increased to £500,000.

There are circumstances where the Inheritance Tax rate is reduced on some assets. If 10% or more of the net value (total value of the estate less any debts) is left to a charity, in the will, then the tax rate is reduced to 36%.

Another type of relief depends on when the property is gifted. A taper relief may apply to the taxable amount which is related to when the property was given to when they passed away. It maybe less than the standard tax rate of 40%.

There are other tax reliefs, such as Business Relief, where some assets can be passed on at a reduced tax bill or free of Inheritance Tax.

 

How much tax do I pay?

The standard rate for Inheritance Tax is 40% and applies to the part of the estate above the threshold. For example, if the estate is worth £625,000 and the tax free threshold is £325,000. In this instance, the difference above the tax free threshold is £300,000. This amount is subject to the tax.

The above information should be viewed for illustration purposes only. We would recommend advice is obtained from a suitably qualified independent tax advisor.

 

How Blackacre can assist

We as RICS chartered surveyors also part of the Registered Valuer Scheme can prepare a valuation report in accordance with HMRC standards. This is so that the report prepared is up to standard and greatly reduces the possibility of the district valuer, who acts for HMRC, querying the valuation.