Paying Inheritance tax

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IHT - Paying IHT

Introduction

This guide is designed to help our customers to obtain a grant of representation, complete an account of the deceased's estate, and pay any inheritance tax (IHT) which may be due.

It also gives advice about lifetime gifts and the taxation of discretionary trusts.

The proposals in the Finance Bill 2006 affect the meaning in this article regarding:

Gifts into certain kinds of trusts;
The tax treatment of trusts, known as interest in possession trusts, in which the beneficiaries have a right to benefits;
The ending of an interest in possession during a beneficiary's lifetime;
The treatment of funds in alternatively secured pensions on death.

This article will be updated as necessary when the Finance Bill is enacted.

Who pays the inheritance tax on the deceased's estate?

As a personal representative, you are liable for inheritance tax on:

Assets that were not held in trust; and
Land in the UK, held in trust which comes into your possession.

You must also tell the trustees of any trust the deceased had an interest in, that they are liable for the inheritance tax on the assets in that trust.

Who else is liable?

If, for some reason, you or the trustees do not or cannot pay the tax, you should tell the following that they have a secondary liability to inheritance tax:

The beneficiaries, or anyone, who later receives assets in the estate
Anyone benefiting from assets already in trust at the time of death or who receives income from such assets.

Is there any limit on liability?

Yes. Your liability as a personal representative is limited to the assets you receive as a personal representative, or might have received but for your neglect or default.

There is a separate limit to your liability for the inheritance tax on settled land in the UK. This cannot exceed the value of the land that comes into your possession. Similar provisions apply regarding neglect or default.

There are also limits to the liability for inheritance tax of:

Trustees - liability is limited to the assets they have received, accounted for or had available to them as trustees, or would have but for their neglect or default;
Any person who possesses, or has a beneficial interest in, any assets - their liability is only to the extent of those assets;
People receiving benefits under a discretionary trust - liability is only to the extent of amounts they received, less any income tax that they have paid.

Who pays the tax if inheritance tax is due on gifts?

If a person dies within seven years of making a gift, inheritance tax (or additional inheritance tax) may be payable. If it is payable on such gifts, the people liable are:

The transferee;
A nominee, a trustee, or a life tenant – any person who takes the asset (or a beneficial interest in possession in it) at any time after the transfer;
A person who receives a benefit from a discretionary trust – where property is transferred into trust, any person for whose benefit any of the asset or its income is used;
You will have a secondary liability for the inheritance tax (unless the charge arises under the settled property rules); if
It has not been paid within 12 months after the end of the month in which the death occurs; or
No-one else is liable for the inheritance tax or part of it because of the limitation of liability provisions, for example, if the tax on the value transferred exceeds the value of the asset actually received by the transferee.

When does the inheritance tax have to be paid?

Inheritance tax is due six months after the end of the month in which the death occurred. We call this the due date.

Month of death	Due date
January	31 July
February	31 August
March	30 September
April	31 October
May	30 November
June	31 December
July	31 January
August	28/29 February
September	31 March
October	30 April
November	31 May
December	30 June

What about the tax on gifts?u

Inheritance tax on potentially exempt transfers, which become chargeable becaue the person who made them dies within seven years of the gift, is also due six months after the end of the month in which death occurred.

What about the tax on gifts?u

What about instalments?

If the estate includes installment option property, the first instalment will also be due on the due date (see table above). The second instalment will be due twelve months after that.

How do I work out how much tax is due?

You need to complete the form IHT200 first. When you have done that, you can work out the tax and interest that is due with the help of the working sheet IHT200(WS).

Will you work out the tax for me if I don’t want to do it myself?

If you are applying for a grant without the help of a solicitor or other agent, you do not have to work out the tax if you do not want to. You can send in the forms to us and we will make a provisional calculation of the tax that is due based on the information on the form.

In that case, you do not have to fill in the form IHT200 (WS) and you should leave sections H and J of form IHT 200 blank. Make sure you remember to fill in sections K and L.

How much tax do I have to pay before I can get the grant of representation?

You must pay the inheritance tax you are liable for on the deceased’s estate before you can get the grant of representation, even if this is before the due date.

You will also have to pay the first instalment of tax on any instalment option property if you are applying for the grant after the due date.

Will I have to pay any interest?

When is interest charged?
What is the rate of interest?
How do I work out the interest on tax not being paid by instalments?
How do I work out the interest on tax being paid by instalments?
When is interest not payable on instalments?
What happens about the interest if I make a payment on account?

When is interest charged?

Interest is charged on inheritance tax you have not paid by the due date. (See table 1 below)

The reason why you have not paid the tax does not matter. Interest is not a penalty; it compensates the Exchequer for the delay in receiving the money due to it. If you pay too much tax, we pay interest on the overpayment at the same rate as we would charge interest if tax was overdue.

Table 1
Month of death	Due date	Interest starts from
January	31 July	1 August
February	31 August	1 September
March	30 September	1 October
April	31 October	1 November
May	30 November	1 December
June	31 December	1 January
July	31 January	1 February
August	28/29 February	1 March
September	31 March	1 April
October	30 April	1 May
November	31 May	1 June
December	30 June	1 July

What is the rate of interest?

Since the 6 September 2005, the rate of interest has been 3%. For earlier periods, see table 2 below.

Table 2
Interest period	Number of Days	Interest Rate
6.10.88 to 5.07.89	273	9%
6.07.89 to 5.03.91	608	11%
6.03.91 to 5.05.91	61	10%
6.05.91 to 5.07.91	61	9%
6.07.91 to 5.11.92	489	8%
6.11.92 to 5.12.92	30	6%
6.12.92 to 5.01.94	396	5%
6.01.94 to 5.10.94	273	4%
6.10.94 to 5.03.99	1612	5%
6.03.99 to 5.02.00	337	4%
6.02.00 to 5.05.01	455	5%
6.05.01 to 5.11.01	184	4%
6.11.01 to 5.08.03	638	3%
6.08.03 to 5.12.03	122	2%
6.12.03 to 5.09.04	275	3%
6.09.04 to 5.09.05	365	4%
6.09.05 to 5.09.06	365	3%
6.09.06 to	-	4%

How do I work out the interest on tax not being paid by instalments?


1.	Work out the number of days from the date interest starts (table 1) to the date you expect to pay the tax, including those two days themselves.

2.	From table 2, find out the interest rate for that period.

3.	Multiply the tax due by the interest rate then by the number of days and divide the answer by 366 tax due x interest rate % x number of days/366 = interest due

Example

The deceased died on 7 February 2004. The papers and tax were sent to us on 14 November 2004. The tax due was £5,000.

The date interest starts from for a death in February is 1 September the same year. The start date is 1 September 2004 and the finish date is 14 November 2004.


1.	The number of days between those two dates is 75:
	Days in September = 30 Days in October = 31 Days to 14 November = 14 Total = 75

2.	The rate of interest for the period 1 September 2004 to 14 November 2004 is 4%

3.	The interest due is: £5,000 x 4% x 75/366 = £40.98

How do I work out the interest on tax being paid by instalments?

Interest is normally payable on instalments from the date when the first instalment is due. On the first instalment, we charge interest, on that instalment only, from the due date to the date of payment.

On each later instalment, we charge interest

On the whole unpaid portion of the tax, for one year; and
On the instalment itself, from the date it is due to the date of payment.

Example 2

The deceased died on 7 February 2004. The papers and tax were sent to us on 14 November 2004. The tax due on the instalment option property is £10,000. Each instalment is therefore £1000.

The date interest starts from for a death in February is 1 September the same year. The start date is 1 September 2004 and the finish date is 14 November 2004.

Instalment 1

£1,000 x 4% x 75/366 = £8.19 interest for late payment

Instalment 2

The second instalment is due on 1 September 2005 and is paid on 15 September 2005, which is 15 days late. Interest is charged on the late payment:
£1,000 x 4% x 15/366 = £1.63 interest for late payment

Plus interest is charged on the whole of the outstanding balance for the whole year from 1 September 2004 to 1 September 2005:

£9,000 x 4% = £360

The total tax and interest due on the second instalment is therefore:

Tax - £1,000.00
Interest 1 - £1.63
Interest 2 - £360.00
Total - £1,361.63

When is interest not payable on instalments?

Inheritance tax paid by instalments on some types of asset is interest free. (We call this 'with interest relief' or WIR.) This means you only pay interest if you pay the instalment itself after the date it is due.

Instalments of inheritance tax are interest-free (if the instalments are paid on time) if the tax is on:

Shares or securities which qualify for payment by instalments. But shares in an investment or property company (whether a dealing or holding company) qualify only if the company is:


a.	A holding company of companies, which are not investment or property companies; or

b.	A market maker or discount house in the UK;

A business or interest in a business carried on for gain;
Land which qualifies for agricultural relief; and
Timber.

What happens about the interest if I make a payment on account?

You may send money on account at any time, even if you have not received a calculation. This will stop interest running on the amount you have sent. (This amount is shown on calculations as a 'deposit'.) When we send a calculation, it will show the deposit set off against the amount due.

Can I pay by instalments?

In some cases you may pay inheritance tax by instalments. However, you may have to pay interest on any tax paid this way.

You may pay inheritance tax by instalments on certain types of assets. These are:

Land and buildings;
Certain shares and securities;
The net value of a business or an interest in a business, including a profession or vocation, carried on for gain (this does not include individual assets of a business, which are distinct from the business as a whole);
Timber.

The most common asset on which tax may be paid by instalments is the deceased’s house.

In many estates, 100% business relief may cover businesses, business interests and unquoted shares and 100% agricultural relief may cover agricultural property. If this is so, there may be no inheritance tax to pay on them.

What shares or securities qualify for payments by instalments?

You may pay inheritance tax by instalments on shares or securities in a company; if

They gave the deceased control of the company at the time of the transfer
They are unquoted; and


a.	You can show that the inheritance tax on their value could not be paid in one sum without undue hardship; or

b.	At least 20% of the tax for which the same person is liable in the same capacity, is on assets (including the shares in question) which qualify for payment by instalments;

They are unquoted shares and their value is more than £20,000 and the shares represent at least 10% of the nominal value of the company’s share capital or (if they are ordinary shares) at least 10% of the nominal value of the ordinary share capital.

What must I do to pay by instalments?

To pay by instalments, you must give us written notice (there is a section about this in the inheritance tax account). The instalments are of 10 equal yearly amounts. The first instalment is due on the date when the whole tax would have been due if you were not paying it by instalments.

Remember that you may have to pay interest.

What if I change my mind about instalments?

If you choose to pay by instalments you may, at any time, pay the balance of the tax in one sum.

Can you withdraw the option to pay by instalments?

Yes. You must pay any unpaid instalments immediately if:

The asset is sold;
The relevant business, or an interest in it, is sold;
A payment is made, for example, under a partnership deed, in respect of a business interest;
The assets were held in trust, but cease to be held in trust.

If only part of the asset is sold, you must pay a proportionate amount of the tax immediately.

Can IHT on lifetime gifts be paid by instalments?

The transferees are liable for any tax due on a lifetime gift, but they may also be able to pay by instalments. They may pay by instalments if they still own the asset when the transferor dies.

If the assets are unquoted shares or securities, they must be unquoted throughout the period (from the date of the transfer to the death of the transferor) to qualify for the instalment option.

Please do not send cash through the post

Please do not fold the cheque and do not fasten it with paper clips or staples or in any other manner.

In the interests of security please make sure that your cheque:

Is made payable to "HM Revenue & Customs Only", and provide;
Your Capital Taxes reference if we have provided you with one (for example, where we have sent you an inheritance tax calculation) after the payee details or write;
The full name of the deceased, transferor or settlement; and
The date of death or settlement on the reverse of your cheque.
Payment should be sent with any supporting papers to our:
Edinburgh office, if you are applying for Confirmation in Scotland. You should address the envelope to ‘ The Cashier’;
Nottingham office, if you are applying for a grant in England, Wales and Northern Ireland. The envelope should be addressed to ‘Section K’.

Payments sent to Nottingham by DX should use DX 701205 NOTTINGHAM 4.

To allow for possible postal delays (for which we are not responsible) we advise you to allow at least 3 working days for the payment to reach us.

Making Payment

All banks and building societies that offer Internet and Telephone banking payments can accept payments for Inheritance Tax.

These payment methods enable you to tell your bank to make a payment on a specific date. You therefore know for certain on which day payment will reach us.

It normally takes three bank working days for payment to reach us. Some banks or building societies take longer. You should check with your bank or building society to see how long they take to transfer payment and what their cut off time is for initiating a payment is.

Payment Date

Inheritance tax is generally due six months after the end of the month in which the death/transfer occurred. For transfers other than on death and made in the period from 6 April up to and including 1 October in any one year, tax is due by the 30 April the following year. Interest is charged on overdue tax irrespective of the reason for delay.

Bank Account Details

When using these electronic systems you will need to provide your bank or building society with our bank account details. These are:

Office	Sort code	Account number
Nottingham	10-00-00	23430303
Edinburgh	83-06-08	00132961

Reference Number

You should also provide your bank with either:

Your Capital Taxes reference if we have provided you with one (for example, where we have sent you an inheritance tax calculation). The reference number is in the format F123456/78X;
The full name of the deceased, transferor or settlement;
The date of death or settlement.

Bank Giro

If your bank (or building society) offers this service, take your pay slip with payment to your own bank branch. Other banks may refuse to accept it or charge you for this service. In particular cheques should be taken to the bank/building society that they are drawn on.

Any cheque must be made payable to ‘HM Revenue & Customs Only’. Some building societies do not accept bank giro payments.

You can pay by cash or cheque.

To allow for possible delays in bank processing (for which we are not responsible) we advise you not to leave payment until the last day. We suggest you allow at least 3 working days for payment to reach us.

Payment Date

Direct Payment Scheme

What is the direct payment scheme?

You can pay some or all of the inheritance tax (IHT) that is due on delivery of form IHT200 by arranging to have money transferred from the deceased's bank or building society accounts directly to us using the IHT direct payment scheme.

Are all banks taking part in this scheme?

Many banks and building societies are part of this scheme, but you should check with the deceased's bank or building society before going any further.

Can I use funds held in a joint account?

No, the scheme only applies to accounts in the deceased's sole name.

What if there are funds in one account, but an overdraft on another?

If the deceased held more than one account of any sort with the same bank or building society, and one account is overdrawn whilst another is in credit, the bank or building society may wish to repay the overdraft from the funds in credit, leaving only the balance available to pay the IHT.

Will there be fees to pay?

Withdrawal of funds will be subject to normal banking rules applying to accounts. For example, if the account is a 'notice' account, there may be a fee to pay or loss of interest. You should check with the bank or building society concerned whether this applies to the deceased's accounts.

We suggest that you also ask whether the bank or building society will charge a fee for this service.

What do I need to do?

If you wish to use this scheme you should identify yourself to the banks or building societies to which you expect to give instruction to transfer money and prove that you are an appropriate personal representative. Contact each organisation to find out what their requirements are for you to do this. We recommend that you do this well before you intend to apply for a grant of representation to avoid unnecessary delays later on.

Which form should I fill in?

You should fill in Form D20 (PDF 58K) 'Application to transfer funds to pay inheritance tax'. Use a separate form for each bank or building society that will be making the transfer of funds. Form D20 is a supplementary page to the form IHT 200.

Then you should


1.	Apply to Capital Taxes for a reference number for the deceased by ringing the IHT and Probate Helpline.

2.	Write the reference number on the form D20.

3.	When you have filled in the form IHT200, complete the rest of the form D20 by following the instructions in the D20(notes) (PDF 32K)

4.	When you have completed the form D20 and you are ready to apply for a grant you should send:
	Form D20 to the banks or building societies that will be making the transfers Form IHT200, the relevant supplementary pages, form D18 and any other supporting documents to us.

What happens next?

The bank or building society will transfer the money to us. They will be able to tell you how long it will normally take them to make the transfer. Once we receive notification of the payment, we will link the payment to form IHT200 and provided all is in order, we will stamp and return the form D18.

How do I pay using the deceased's Government stock?

The tax on some of the assets has to be paid before the issue of a grant of representation. To help you to do this you can, if you wish, pay the tax using the deceased's British Government stock, such as:

War Loan;
Treasury Stock;
Exchequer Stock.

Please note that it may take up to four weeks from the receipt of your application until the money is transferred to HM Revenue & Customs. For this reason, we suggest that you do not use this method of payment if the grant of representation is needed urgently.

How do I find the value of the British Government Stock?

You can find out the value of British Government stock from your bank or stockbroker or from the UK Debt Management Office.

Does the stock have to be registered in the deceased's own name?

Yes, you can only use stock to meet the payment of Inheritance Tax where the deceased is registered as the sole (or surviving) stockholder, following receipt of formal proof of death. If the stock is registered to an investment company, who dealt with it on behalf of the deceased, it cannot be used to pay the tax.

What else do I need to do?

You need to write to the registrars for British Government stock, and let them know that you want to transfer funds from the British Government stock to pay the inheritance tax and how much you want to transfer. You will also need to provide them with formal proof of death. The registrars are:

Computer share Investor Services PLC
PO Box 2411
The Pavilions
Bridgwater Road
Bristol
BS3 9WX
Helpline 0870 703 0143
E-mail gilts

Computer share may need the reference number to help them find a particular investment. This number appears on the stock certificate and on correspondence from the Bank of England.

It is not necessary to liquidate the whole holding of stock. If necessary, Computer share will only liquidate enough of the holding to meet the payment of tax. They aim to deal with requests within 5 working days.

Will there be a charge for this service?

Computer share charge a commission for this service. For stock with a value of up to £5,000 the rate is 0.7%. Otherwise there is a charge of £35 for the first £5,000 and a rate of 0.375% is charged on everything over this. (Rates correct at 01/09/2005.)

What do I need to send to Capital Taxes?

You need to send us a letter stating how much of the tax you want to be paid out of the British Government stock together with the inheritance tax account IHT200 and form D18 to our Pre-Grant section.

If you are applying for a grant in England, Wales or Northern Ireland, send them to our address in Nottingham;
If you are applying for Confirmation in Scotland you should send these letters with the completed inheritance tax account IHT200 and C1 inventory form to our Edinburgh address.

What happens next?

When we receive the forms and letters we contact Computer share asking for the money to be transferred to HM Revenue & Customs. This may take up to four weeks. If the amount transferred is enough to cover the tax due and:

You are a personal applicant applying for a grant in England, Wales or Northern Ireland we will send the receipted D18 direct to the Probate Registry so they can issue the grant;
You are a practitioner applying for a grant in England, Wales or Northern Ireland we will send the receipted D18 to you so you can apply for a grant;
You are applying for Confirmation in Scotland we will receipt the C1 and return it to you, so that you can apply for Confirmation from the sheriff clerk or commissary clerk.

What if there is additional tax due?

If any additional tax is due after the money has been transferred to HM Revenue & Customs we will tell you how much you must pay and how to pay it.

Payment using the deceased’s National Savings

How do I pay using the deceased's National Savings Investments?

The tax on some of the assets has to be paid before the issue of a grant of representation. To help you to do this you can, if you wish, pay the tax using the deceased's National Savings Investments, such as:

National Savings Bank accounts;
National Savings Certificates;
National Savings Capital, Deposit or Income Bonds;
Children's Bonus, FIRST option or Pensioners Guaranteed Income Bonds;
Premium Savings Bonds;
Save as You Earn contracts and Year plans.

How do I find the value of the National Savings?

You should write to National Savings to obtain a letter giving:

The value of the deceased's investments at the date of death;
The National Savings Reference.

Which National Savings Office should I write to?

For most National Savings Bank Accounts, National Savings Capital Bonds and Children's Bonds or FIRST Option Bonds

National Savings & Investments
Glasgow G58 1SB

DX 501754
Cow glen

For National Savings Certificates, Save as you Earn contracts and Year Plans, Cash Mini ISA or TESSA ISA

National Savings & Investments
Durham
DH99 1NS

DX 69290
Durham 11

For Premium Bonds, National Savings Income Bonds, Guaranteed Equity Bonds and Pensioners Guaranteed Income Bonds

National Savings & Investments
Blackpool
FY3 9YP

DX 712430
Blackpool 3

How can I telephone or e-mail National Savings?

National Savings general enquiry line: 0845 964 5000 (7.00 am to midnight 7 days a week)
E-mail: customer enquiries

What do I need to send to Capital Taxes?

Please do not send us original passbooks or certificates. If you wish to use any of the qualifying investments to pay the tax due, please provide:

A letter detailing the investments to be used;
Official letters stating the value of those investments together with the inheritance tax account IHT200 and form D18 to our Pre-Grant section;
If you are applying for a grant in England, Wales or Northern Ireland, send them to our address in Nottingham;
If you are applying for Confirmation in Scotland you should send these letters with the completed inheritance tax account IHT200 and C1 inventory form to our Edinburgh address.

What happens next?

When we receive the forms and letters we contact National Savings asking for the money to be transferred to HM Revenue & Customs. This may take up to four weeks. If the amount transferred is enough to cover the tax due and:

You are a personal applicant applying for a grant in England, Wales or Northern Ireland we will send the receipted D18 direct to the Probate Registry so they can issue the grant;
You are a practitioner applying for a grant in England, Wales or Northern Ireland we will send the receipted D18 to you so you can apply for a grant;
You are applying for Confirmation in Scotland we will receipt the C1 and return it to you, so that you can apply for Confirmation from the sheriff clerk or commissary clerk.

What if there is additional tax due?

If any additional tax is due after the money has been transferred to HM Revenue & Customs we will tell you how much you must pay and how to pay it.

Can I recover IHT I have paid for someone else?

Yes. The people who paid the tax may not be the ones who were liable.
There is provision for you to recover any:

Inheritance tax;
Interest charged; and
Costs.

You properly incurred in relation to it, from those who should have paid it.

You may also recover any inheritance tax you have paid out of the estate from any person on whose behalf you have paid it. When you do this, you should take the terms of the Will into account. If an asset is 'free of tax' the burden of tax should fall on the residue of the estate, not on the asset itself.

How can I be sure I have no more IHT to pay?

You can ask us for a clearance certificate. As long as you have supplied the necessary account and paid all the inheritance tax and interest due, we will give you a clearance certificate if you ask for it.

What is a clearance certificate?

The clearance certificate means that you will not have to pay any further tax on the transfer described in the certificate, unless:

There has been fraud or a failure to disclose material facts;
Further property is later shown to have been included in the transfer;
Further tax becomes payable as a result of an instrument of variation.

If you are paying the tax by instalments, you do not have to wait until you have paid all the instalments to get a clearance certificate. If you have paid all the tax on the assets that do not have the instalment option, we may give you a clearance certificate that clears you from further tax on those assets.

How do I get a clearance certificate?

You should complete for IHT30 (PDF 44K) when you believe that all the inheritance tax has been paid and send the form in duplicate to the Capital Taxes office that has been dealing with your case.

When we are satisfied that you have paid all the tax, we will put our official stamp on one copy of the form and return it to you. This is your clearance certificate.

Click to buy: Share and Stock Transfer Form

If by chance you find any error in this information page, do please tell us. We should also welcome your suggestions for new subjects for information pages. These notes:
Do not provide a complete or authoritative statement of the law;
Do not constitute legal advice by Net Lawman;
Do not create a contractual relationship;
Do not form part of any other advice, whether paid or free.

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