Planning for the future or dealing with the estate of a loved one can be an emotional and overwhelming process. One of the key financial questions families often ask is: When do you have to pay Inheritance Tax? Understanding the rules around inheritance tax, including deadlines, thresholds, and exemptions, can make a difficult time less stressful, and already having a plan in place elevates. This article offers a clear and practical overview of what inheritance tax is, when it must be paid, some advice from our experts and explains how planning ahead can make the process easier for everyone involved.
What is Inheritance Tax? A Simple Explanation
Inheritance Tax (IHT) is a tax applied to the estate of someone who has passed away. An estate includes everything a person owns, such as property, money, investments, and possessions.
The standard rate of inheritance tax is 40%, and it is usually charged on the value of the estate above the applicable thresholds. While that may sound daunting, not every estate will owe IHT, thanks to allowances and reliefs.
At Kirkwood Wilson, we often advise clients to view inheritance tax not simply as a burden but as a key area where professional planning can reduce stress and save money for beneficiaries.
The Key Question: When Does Inheritance Tax Need to Be Paid?
Inheritance tax must be paid by the end of the sixth month after the person’s death. For example, if someone dies in January, the deadline for payment is 31 July of the same year. If the deadline is missed, HMRC charges interest on the outstanding amount, which can increase the estate’s liabilities. Importantly, you’ll need a payment reference number from HMRC before making any payment.
Understanding exactly when IHT is due is vital for executors and families alike. Professional inheritance tax advice can help avoid costly mistakes during this time-sensitive process.
Understanding the Inheritance Tax Thresholds (The Nil-Rate Bands)
The good news is that not every estate pays inheritance tax. The current Inheritance Tax threshold, known as the Nil-Rate Band (NRB), is £325,000 for the 2025/26 tax year. Estates valued below this level are not liable for IHT.
In addition, the Residence Nil-Rate Band (RNRB) offers a further allowance of £175,000 when a main residence is passed to direct descendants, such as children or grandchildren. Additionally, spouses and civil partners can combine allowances, and unused allowances can be transferred. This means that, in some cases, a couple could pass on up to £1 million without incurring any inheritance tax.
A note from our experts:
“At Kirkwood Wilson, we stress the importance of understanding these allowances. Many families can legitimately reduce or even eliminate inheritance tax liabilities through careful inheritance tax planning,” Sarah Bennett, Accountant at Kirkwood Wilson.
The Rules on Gifting: A Major Area of Confusion
Another common question we hear is about the inheritance tax gift rules. Gifts can be a smart way to reduce the value of your estate, but the rules are not always straightforward.
- Potentially Exempt Transfers (PETs): If you gift money or assets and live for seven years afterward, the gift is exempt from inheritance tax. This is often called the seven-year rule.
- Annual exemption: Each tax year, you can gift up to £3,000 free of IHT. If unused, this allowance can be carried forward for one year.
- Other allowances:
- Small gifts of up to £250 per person.
- Wedding or civil partnership gifts (up to £5,000 depending on the relationship).
- Gifts to charities or political parties.
- Unlimited gifts between UK-domiciled spouses or civil partners.
If gifts are made within seven years of death, taper relief may reduce the IHT owed depending on how long ago the gift was made.
Case Study Example:
Imagine a parent gifts £100,000 to a child and then lives for six years. On death, part of that gift may still be subject to inheritance tax, but taper relief could reduce the rate. If the parent had survived seven full years, no tax would have been due.
How is Inheritance Tax Paid?
The executor of the will is usually responsible for arranging payment of inheritance tax. There are several ways to pay:
- Directly from the deceased’s bank account using HMRC’s Direct Payment Scheme.
- From the executor’s personal funds, later reimbursed from the estate.
- Through a bank loan, if estate funds are not immediately available.
- In instalments over up to 10 years, particularly for property or other illiquid assets.
It’s worth noting that some inheritance tax may need to be paid before probate is granted, which can create cash flow challenges. This is one of the many reasons why seeking help from an accountant for inheritance tax can make the process smoother.
The Importance of Professional Advice
Inheritance tax is one of the most complex areas of personal finance. Between the deadlines, thresholds, exemptions, and inheritance tax gift rules, it’s easy to feel overwhelmed.
Working with a professional who offers inheritance tax advice ensures that:
- Your estate is valued accurately.
- All available allowances and exemptions are applied.
- Strategic inheritance tax planning reduces future liabilities.
- The correct HMRC forms, such as the IHT400, are submitted on time.
At Kirkwood Wilson, our experienced accountants regularly guide clients through the inheritance tax process, providing clear, practical advice at every step.
If you’d like to discuss your own circumstances or need support as an executor, contact our friendly team today on 01704 546000 for a no-obligation consultation.
Knowing when you have to pay inheritance tax is essential for executors and families planning ahead. From understanding thresholds to navigating gift rules, proactive planning can help you avoid unnecessary stress and costs. With the right professional guidance, you can ensure your estate is managed efficiently and your loved ones are protected.
