Inheritance Tax requires Britons to meet a tax bill on the value of the estate of someone who has passed away. An estate is considered as the property, money and possessions of a person, and usually has to be valued after a person has died. Inheritance Tax is set by the government at 40 percent, but the levy is only paid on the value of an estate above a particular threshold.
For most Britons, this threshold stands at £325,000, although there are exceptions which could change this for some.
If an estate’s value falls below the standard threshold, people are still required to report this to HM Revenue and Customs (HMRC), so it is important to stay alert.
However, there is one particular deadline which is of the utmost importance when considering an IHT bill.
And failing to meet this deadline could have grave consequences in terms of the amount which needs to be paid.
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As the tax is already set at 40 percent, extra interest could prove a devastating blow for families and friends.
From April 2020, HMRC has said the interest rate is set at 2.60 percent, with interest on repayments at 0.5 percent.
However, aside from paying on time, there is one other way Britons may be able to dodge having to pay extra.
Inheritance Tax payments can be made early, even before people know the exact amount the estate owes.
This process is known as ‘payment on account’, and is designed to help people avoid accidentally incurring interest on an estate.
Payment on account is, however, insured by an HMRC policy for those who are concerned about potentially paying too much.
If a person pays more money than the final bill states the estates owes, HMRC will refund the excess amount.
This is a process which usually takes place after a person has been given probate, so it may be slightly lengthier than hoped for.
HMRC states it will also pay interest on the amount which has been overpaid.
The refund, though, is not automatic, and to receive it, people are required to write to HMRC.
Inheritance Tax can be eliminated altogether in two main circumstances.
If the value of a person’s estate is below the £325,000 threshold, an IHT bill is usually not payable.
And finally, if a person leaves everything above their threshold to a spouse, civil partner, a charity or community amateur sports club, they normally have no IHT to pay.