Inheritance tax for dummies please

rosebud666

Could some one explain HOW inheritance tax is paid?  I know all the rules but if, for instance I leave my house to my three children equally and the estate is worth £600,000 when I die. Do they all pay a share of the tax owing on £600,000 (I know all about the allowances, it will mean there is a lot less tax to pay) BUT if each one is only getting £200,000 does that mean they don't pay any tax??

Savvy_Sue

Your executors would pay the IHT from the estate, before anything went to each child.

bobster2

rosebud666 said:

Could some one explain HOW inheritance tax is paid?  I know all the rules but if, for instance I leave my house to my three children equally and the estate is worth £600,000 when I die. Do they all pay a share of the tax owing on £600,000 (I know all about the allowances, it will mean there is a lot less tax to pay) BUT if each one is only getting £200,000 does that mean they don't pay any tax??

In simple terms with the current allowances the first £325,000 of your estate would be exempt from IHT (the nil rate band). And also the next £175,000 (the residential nill rate band) as you are leaving your house to direct descendants.

So the estate would pay 40% IHT on everything over £500,000 - i.e. £40,000

Leaving £560,000 to be split between your 3 children.

Flugelhorn

the key to remember is that the tax has to be paid before probate is granted, some people struggle to find the cash to do this as it is tied up in assets, though HMRC do allow instalments 

rosebud666

Thanks, I read everything I could find but nothing mentioned HOW the money is paid. My house is the only asset so that is a bit of snag. 

Newly_retired

Don't forget it may all change in the future.

km1500

when someone dies the executors work out the value of the estate, deduct any allowances and the rest is subject to inheritance tax at 40%

the executors then pay the money to HMRC who then issue probate so that the house etc can be sold for example

if there was no cash as such then the executors have to either get a loan or arrange with HMRC to pay the money in installments 

if you are asking how the money is physically paid then you set up a faster payment from your bank account to HMRC

https://www.gov.uk/paying-inheritance-tax

tacpot12

...

if there was no cash as such then the executors have to either get a loan or arrange with HMRC to pay the money in installments 
...

Or sell the house. 

Runner_Duck

I don't want to be boring but you can't sell the house until you have the Grant of Probate, and you can't get that until IHT is paid or you have agreed with HMRC an instalment plan to pay. HMRC also charge interest on unpaid IHT.

km1500

yes, exactly right.

rosebud666

I just found online an article that says the a spouse inherits their husband/wife's allowance as well, so in fact you could leave a million pounds and not pay inheritance tax. Also, I am aware that the labour government might change the rules or I might be forced into a care home but I just wanted some peace of mind. Thank you for the replies.