Inheritance tax receipts in the UK totaled approximately £5.32 billion in the financial year 2020/21, with this down slightly from the previous year’s peak of £5.36 billion.
Of course, inheritance tax remains an inherently controversial and complex levy and one that many people continue to misunderstand to their detriment.
In this post, we’ll look at the key facets of inheritance tax, while asking what you can expect as the beneficiary of an estate.
Do You Always Have to Pay Inheritance Tax?
If you own an estate, the good news is that you won’t be eligible to pay any inheritance tax (IHT) at all if its value is less than £325,000.
This is the minimum IHT threshold in the UK, and it means that the majority of households and estate owners won’t have to pay a levy on the cumulative value of their wealth or financial assets.
In instances where you intend to give your house to children or grandchildren, this minimum threshold increases to a whopping £500,000.
It’s important to keep this in mind when valuing your estate and planning its initial distribution, as you can factor in the need to ‘gift’ money or property to beneficiaries ahead of time to negate the issue of taxation.
What About if Your Estate is Worth More Than £325,000 (or £500,000)?
OK, we hear you ask, but what happens when the value of your estate is higher than £325,000 (or £500,000 if you intend to give your property to minors)?
In these cases, your estate will be taxed at a basic IHT rate of 40%, with this payable by beneficiaries.
More specifically, individuals will pay 40% on the total value of what they receive as part of a last will and testament, with this representing a significant chunk of the overall payout.
This also reaffirms the importance of creating a formal will as part of the estate planning process. After all, an executor will pay the inheritance tax in instances where a will exists, whereas this burden falls on the administrator of the estate if no such document exists.
The Last Word – When Should You Expect to Receive Your Inheritance?
If you’re a beneficiary, you should note that the distribution of an estate can be a long and complex process (even when a will exists).
Also, while the inheritance tax needs to be paid in the six months after a benefactor’s death, the actual inheritance may not be paid until some time later (this can occasionally take up to a year).
So, it may be worth taking out an executor’s loan to cover the initial cost of paying IHT, enabling you to meet your legal requirements without creating short-term financial issues while waiting for your payout.
This can be incredibly helpful, especially when you’re also dealing with the emotional challenges caused by the various stages of grief.
