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Inheritance Tax is only owed if the value of the deceased's estate - or a transfer in connection with a trust - exceeds the Inheritance Tax threshold (£325,000 in 2013-14 tax year). The executor or personal representative usually pays the tax from the deceased’s estate. The trustees usually pay the tax on trust assets.
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Usually, the executor, personal representative or administrator (for estates where there's no will) pays Inheritance Tax on any assets in the deceased’s estate that are not held in trust.
The money generally comes from the deceased person’s estate. However, because the tax must be paid within six months of the death and before the grant of probate can be issued (or grant of confirmation in Scotland), sometimes the executor has to borrow the money or pay it from their own funds. This can happen if it hasn't been possible to get the money from the estate in time because it's tied up in assets that have to be sold.
In these cases, the executor or the people who have advanced the money can be reimbursed from the estate before it's distributed among the beneficiaries (see the section below on 'Recovering your money if you paid Inheritance Tax for someone else').
Inheritance Tax on transfers into trust is only necessary if the total transfer amount is above the Inheritance Tax threshold. It's usually payable by the person making the transfer(s) - known as the 'settlor' - not the trustees.
The trustees must pay any Inheritance Tax due on land or assets already held in trust. The occasions for this include:
If the executor or the trustees can’t pay the Inheritance Tax, the beneficiaries or 'donees' (recipients of gifts made during a person's lifetime) may have to pay it. A beneficiary or donee only has to pay Inheritance Tax in this case if:
Here are some examples of when a beneficiary or donee might have to pay Inheritance Tax.
If someone gives you a gift and they do not survive for seven years after making the gift, you would only be liable to pay Inheritance Tax on that gift if the value of the estate - including the gift - is over the Inheritance Tax threshold (£325,000 in 2013-14 tax year) and there is not enough money in the estate to pay the Inheritance Tax.
However, if all the gifts made by that person during the seven years before they died add up to more than the Inheritance Tax threshold (£325,000 in 2013-14 tax year) - just the gifts themselves not the rest of the estate - Inheritance Tax will be due on all of the gifts that brought the total above the threshold. In this case, you as the donee will usually have to pay the tax due on your gift.
Someone dies and they own property as ‘joint tenants’ with you, but you are not their spouse or civil partner. Inheritance Tax may be payable on their share of the joint property if the total value of their estate is more than the threshold (£325,000 in 2013-14 tax year). As the surviving joint owner, you would be responsible for paying the Inheritance Tax.
If the deceased said in their will that joint property held as ‘tenants in common’ should be given ‘free of tax’, the Inheritance Tax will come from the rest of their estate (if there is enough money in the estate to pay the tax). If there isn't, you will have to pay the difference.
If you have paid the Inheritance Tax due on behalf of someone else, you are entitled to claim the money back from the estate or from whoever should have paid the Inheritance Tax. You can do this once probate (or confirmation) has been granted and before the estate is distributed among the beneficiaries.