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By (user no longer on site) OP
over a year ago
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I question came up today that got us all debating how paying inheritance tax works.
For the sake of argument, you are left £1.325 million.
Inheritance tax threshold is £325k.
£1m is taxable at 40%. Therefore you owe the taxman £400k.
The question is, do you have to pay the tax before you liquidate the assets? Or do you pay some of it with a promise to pay the rest once assets are liquidated? |
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"I question came up today that got us all debating how paying inheritance tax works.
For the sake of argument, you are left £1.325 million.
Inheritance tax threshold is £325k.
£1m is taxable at 40%. Therefore you owe the taxman £400k.
The question is, do you have to pay the tax before you liquidate the assets? Or do you pay some of it with a promise to pay the rest once assets are liquidated? "
You have six months interest free then you have to pay interest on the outstanding tax due.
You can take years to pay but will incur interest. |
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By (user no longer on site)
over a year ago
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I have some experience of this after my dad died a few years ago.
The tax is due before the assets are distributed. Technically the tax is due six months following the death based on the executor's estimate of the value of the estate. Once the tax is paid, HMRC produces a receipt which allows probate to be granted. Only then can assets be liquidated. The tax is always due, even if the estate is made up mainly of assets rather than cash. |
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"I have some experience of this after my dad died a few years ago.
The tax is due before the assets are distributed. Technically the tax is due six months following the death based on the executor's estimate of the value of the estate. Once the tax is paid, HMRC produces a receipt which allows probate to be granted. Only then can assets be liquidated. The tax is always due, even if the estate is made up mainly of assets rather than cash."
That's mad isn't it  |
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By (user no longer on site) OP
over a year ago
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"I have some experience of this after my dad died a few years ago.
The tax is due before the assets are distributed. Technically the tax is due six months following the death based on the executor's estimate of the value of the estate. Once the tax is paid, HMRC produces a receipt which allows probate to be granted. Only then can assets be liquidated. The tax is always due, even if the estate is made up mainly of assets rather than cash.
That's mad isn't it "
So say, for instance, property makes up the bulk of the asset, you would have to pay the tax prior to selling the property? |
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By (user no longer on site)
over a year ago
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Yes, that's exactly right. Payment of tax forms part of the conditions for granting probate, so tax must be paid (or an agreement with HMRC reached) before assets can be distributed or disposed of. |
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By (user no longer on site) OP
over a year ago
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"Yes, that's exactly right. Payment of tax forms part of the conditions for granting probate, so tax must be paid (or an agreement with HMRC reached) before assets can be distributed or disposed of. "
That seems a Catch 22. In the example I gave, youd have to find £400k in advance. Who has that sort of money.
Especially with such house prices, a lot of people would exceed the £325k threshold on property alone! |
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By (user no longer on site)
over a year ago
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"Yes, that's exactly right. Payment of tax forms part of the conditions for granting probate, so tax must be paid (or an agreement with HMRC reached) before assets can be distributed or disposed of.
That seems a Catch 22. In the example I gave, youd have to find £400k in advance. Who has that sort of money.
Especially with such house prices, a lot of people would exceed the £325k threshold on property alone! "
It's not a catch-22, you either have the money to pay the tax or you find the money to pay the tax. Usually HMRC will work on a case by case basis with executors to sort out payment, and banks will generally be okay with bridging loans to cover the tax as they know the assets are there to cover payment. |
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