Taxing Times Jun 10

My mother passed away earlier this year leaving an estate that will attract inheritance tax. The estate includes some cash and shares but the bulk of the estate’s value is the family home. There is not enough cash to pay the inheritance tax bill and I do not want to sell the home at present. Can you tell me when I am required to pay the inheritance tax due?   

Answer:
Inheritance tax (IHT) arising as a result of an individual’s death is due six months after the end of the month in which death occurs.

Notwithstanding this general rule IHT may be paid in instalments if the tax payable by the transferee relates to land and buildings. The number of instalments permitted is ten equal yearly payments. The person paying the tax must elect to pay by instalments in writing to HM Revenue & Customs.

The first instalment is due at the time the tax would have become due if it had not been for the election i.e. six months after the end of the month in which death occurs.

However, it should be noted that the instalment basis is not a cost free option as interest will be charged by HMRC on the balance of tax outstanding from the date when the first instalment becomes due. Thus interest on the outstanding tax is payable with each further instalment.

Even if an election to pay by instalments has been made, all the tax may be paid in one sum with interest due to the date of payment if so desired.

If the property is subsequently sold before the end of the 10 year period then the instalment arrangement will come to an end and any remaining tax will become payable immediately.

You have not specifically asked me about the shares in the estate but as the stock market has been quite volatile I thought I would mention that some qualifying investments which are sold within 12 months of death at a lower value than at death then relief from IHT can be claimed. Clearly it would be worth looking in to this.

Any reader interested in discussing this topic further can telephone Graham Jennings on 01344 875000 or email graham.jennings@kirkrice.co.uk

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.