If you are appointed as the executor of someone’s estate, you will be responsible for handling its inheritance tax obligations. It is vital that you submit any inheritance tax payments within the required time parameters, otherwise you will have to pay interest. Prestige Tax and Trust Services explains how to avoid paying interest on inheritance tax.
Paying inheritance tax
If the estate’s worth eclipses a certain threshold (currently £325,000), it will be required to pay an inheritance tax on the remaining assets. The rate of inheritance tax is currently 40%, however it may be reduced to 36% if at least 10% of the estate is left to charity.
As the executor of the estate, it is your responsibility to work out inheritance tax and make any necessary payments to the UK government. There are several means through which you can submit inheritance tax payments including through your own bank account and you can pay in yearly instalments if you so desire. Whichever payment option you select, we would advise you to ensure you initiate inheritance tax payments as soon as possible or you may have to pay interest.
Avoiding interest payments
According to UK law, you must submit inheritance tax payments by the end of the sixth month after the person has passed away. If you have chosen to pay in yearly instalments, you must send the first payment by the end of the sixth month after the person died. If you do not follow this time frame, HM Revenue and Customs (HMRC) will charge you interest. You can use the government’s inheritance tax interest rate calculator to determine how much this could cost the estate.
Therefore if you wish to avoid paying interest on inheritance tax, it is essential that you submit any necessary payments within six months. We would advise you to think about paying inheritance tax early to ensure that you complete payment within this deadline. You can submit payments to HMRC before you know exactly how much inheritance tax the estate will owe the UK government, a method which is known as ‘payment on account.’
With payment on account, you may pay more inheritance tax to HMRC than the estate will eventually owe. In this instance, HMRC will refund the difference to the person in question’s estate once you have applied for probate in England and Wales, or confirmation in Scotland. We should also note that if you overpay through payment on account, HMRC will pay interest on the amount overcharged.
Prestige Tax and Trust Services
It is key that you educate yourself on inheritance tax matters when serving as the executor of someone’s estate. Otherwise, you may be forced to pay interest on inheritance tax to HMRC. You may want to enlist the aid of Prestige Tax and Trust Services when handling inheritance tax matters. Our team has the knowledge needed to ensure that you can avoid paying interest on inheritance tax.