A national increase in property prices has fuelled 3,754 probes into inheritance tax (IHT) between 2020 and 2021.
On average, each IHT investigation launched by HMRC gained an additional £71,000, totalling a further £254 million for the 2020/21 tax year, as reported by Inside Conveyancing.
It was disclosed that, in the first half of the 2021 to 2022 tax year, HMRC received a total of £3.1 billion in IHT. Despite more estates now being over the nil-rate band due to the property price increase, the government have not adjusted the threshold since 2009, even with inflation over the last 12 years. The current nil-rate band stands at £325,000, with a further £175,000 allowance when the main residence is passed onto direct relatives.
The increase in investigations into inheritance tax can be linked to the lack of executors seeking legal assistance from a professional solicitor when handling probate and the administration of a loved one’s estate.
Handling probate and administration without legal help can lead to an increase in errors, particularly in probate applications and calculating the amount of inheritance tax owed to HMRC.
For this reason, if you have been made the executor of a loved one’s estate, it is wise to seek legal assistance, especially as you could be help personally liable for any mistakes that happen. With a solicitor, they will be able to assist you each step of the way, even taking on the role of executor should you wish for further help.
What does the executor of an estate do?
Being the executor of an estate can be a challenging and time-consuming task. Some of the responsibilities include:
- Collecting all the deceased’s financial information and documentation
- Obtaining the deceased’s death certificate
- Informing banks and other financial organisations whilst obtaining details of their finances
- Opening a bank account for the estate
- Collecting information regarding any debts due or money owed to the estate
- Creating a money and property schedule for the estate
- Calculating and paying IHT to HMRC
- Collecting money from all financial organisations linked to the deceased
- Paying off all debts
- Distributing the estate following the Will or Rules of Intestacy
Are the beneficiaries or executors responsible for paying inheritance tax?
Before an estate has been distributed to the beneficiaries, the inheritance tax must be accurately calculated and paid. The executor or administrator of the estate is responsible for ensuring that the correct amount of inheritance tax is calculated and paid to HMRC.
If the executor makes any mistakes when calculating the IHT due, they are the ones liable to pay this, especially if the estate has already been distributed to the beneficiaries.
If the deceased person gave away gifts within seven years of their death, then the gift receivers might have to pay inheritance tax depending on their relation to the deceased and the value of the gift. The rate of inheritance tax would depend on how long before the date of death the gift was made.
What happens if you don’t pay inheritance tax on time?
When a person dies, the executor or administrator of an estate must pay any inheritance tax due to the HMRC by the end of the sixth month after deceased person’s death. If it is not paid within this period, there are penalties for which the executor will be liable.
These penalties include interest being charged on top of the amount of IHT that is due. This means the amount of IHT due will only increase with the more time that it is not paid to HMRC.
Even where IHT is not due on an estate, HMRC needs to be made aware.
How does HMRC investigate inheritance tax?
When inheritance tax is due, the executor will file forms advising of any gifts, their value, and their recipients, as well as other assets the estate has.
HMRC will not be aware of every missed asset or gift, but they do conduct random sampling of the submitted forms, the rate of which has significantly increased in recent years, especially with the surge in property value.
If a gift or asset has not been properly disclosed and HMRC discover this, additional inheritance tax could be due, as well as the possibility of interest and penalty.
When should you use an estate administration solicitor?
We would always recommend using a probate and estate administration solicitor, particularly where the estate is more complex. For instance, a solicitor would be beneficial in the following circumstances:
- The Will’s terms are not clear
- Beneficiaries are under the age of 18
- Money or property has been left in a trust
- Money or property is abroad
- The deceased owned a business
- Where the chance of a Will dispute is likely
A solicitor will be able to ensure that probate is accurately filed and submitted, avoiding any potential mistakes.