Dealing With Inheritance Tax
When someone dies any private property and possessions owned by that person becomes known as his or her estate. It becomes the duty of a chosen executor (as stipulated in the deceased’s will) or administrator (appointed by law if no will exists) to, among other things, have this estate assembled and documented, valued, taxed correctly, and finally distributed to those who stand to inherit either by the terms of the deceased’s will or by the laws of intestacy/succession (if no will exists). Dealing with Inheritance Tax can be a headache, but it must be done before the estate can lawfully pass hands to those who stand to inherit.
Assembling and Documenting the Estate
Whoever is appointed to act for the deceased s estate will need to assemble and document (as much as possible) the deceased’s possessions. Very often details of the estate – both debts and assets – will be found in the deceased’s personal documents or held with his or her solicitor. Common items in many estates include:
- Current, savings or building society accounts.
- Private property, or shares in private property.
- Family heirlooms.
- Stocks, bonds and/or other financial instruments.
- Private pensions.
- Items of historical value.
Valuing the Estate
While it is possible for the executor or administrator of an estate to value it by him or herself, it is best to use a professional valuer who understands the delicate details of this process. For example, there may be situations in which there are items that the deceased gave away but in which (s)he still kept an interest and/or items that were given away within the last seven years that will need to be included in the valuation. Debts too will need to be factored, including outstanding mortgages, unpaid bills, and funeral expenses, among other things, as well the value of any trusts. Professional valuers or chartered surveyors (in the case of property) will be able to determine the open market value of the estate which is needed for tax calculation purposes.
Paying Inheritance Tax
If the estate is valued at higher than £325,000 then the value of the estate above this figure will be taxed at 40%. If it is likely that some Inheritance Tax will be due, then the Inheritance Tax form IHT200 should be filed. Generally, the Inheritance Tax due will need to be paid within six months from the end of the month in which the death occurred or interest will begin to accrue. There are many methods by which Inheritance Tax may be paid, including by cheque, transfer or giro from a personal account (including one held or jointly held by the deceased), with British Government Stock that was held in the deceased s name or with National Savings investments that were held in the deceased s name. Once this tax has been paid, a clearance certificate can be issued upon the filing of form IHT30.
Dealing with Inheritance Tax is usually a complicated matter, one that is best sorted with the help of professional valuers and experienced solicitors. The Probate and Inheritance Tax helpline (0845 3020 900) is also available to answer questions during working hours on Mondays through Fridays.
When someone dies any private property (or shares in private property) that (s)he owned will become a part of his or her estate. This estate will be distributed according to the law either by the executor (someone named in the deceased s will) or administrator (someone appointed by law in the event that no will was left). Depending on the type of property held and the instructions left in the will, there are many ways in which an individual could inherit property and many rights and responsibilities that come along with such an inheritance.
There is also something called a Deed of Variation, which allows the person inheriting the asset to alter either who owns it or how it is applied.
Ways of Inheriting Property
There are three main ways in which private property can be inherited.
The first is if the deceased and the inheritor were living together in a property held as a joint tenancy. Upon the death, the surviving member of this agreement inherits the entire property automatically.
The second common way of inheriting property is if the property was owned as a tenancy in common, then the inheritor will be awarded the deceased s share in the property either as stipulated in the deceased s will or according to the laws of intestacy/succession (in the event that no will exists).
Finally, if the deceased owned the property outright then it will be inherited according to the deceased s will or the laws of intestacy/succession (again if no will exists).
Debts and Inherited Property
Property that is inherited will usually not be released to the inheritor until all debts have been cleared from the deceased’s estate. However, it may be that outstanding debts exist and the property must be sold in order to make up these debts. If such is the case, the inheritor should be informed of these developments and should be kept informed about the process by the executor or administrator of the will. Generally, if the property was held as a joint tenancy then all other avenues of paying debts will be explored before the idea of selling the property must be raised, but if it is impossible to pay these debts otherwise then selling may be the only option. Working with a solicitor will help make all details clear about specific cases.
Uses of an Inherited Property
Sometimes the properties inherited after death are already inhabited by tenants. Whether or not this arrangement will continue is up to the new owner. However, if it does continue then the new owner becomes the landlord and must shoulder all of the responsibilities of this position as stipulated by the law. Regardless of whether the new owner is hoping to sell the property, inhabit the property him/herself, or continue renting the property to others, a solicitor should be consulted to ensure that all laws are followed regarding these transactions. If a new owner does intend to move into the property, (s)he should consult a solicitor regarding the existence of any tenants, registering the property in his/her name, nominating the property as his/her main home with the Tax Office, taking on mortgage payments, paying any applicable taxes and anything else related to his/her specific situation.
Inheriting property is not usually a straightforward affair. There are many ways of inheriting property, and many more issues that must be dealt with such as taxes on the property, the property is used to pay off debts, relationships with existing tenants living in the property, tax issues surrounding the property becoming the owner s main home, the new owner taking over the mortgage on the property and much more. If possible, the guidance of a solicitor should always be sought in case of private property inheritance.