07. Will I have to pay inheritance tax?

Whether or not you, as the executor, have to pay inheritance tax out of the estate depends on:

• how much the property and belongings of the dead person were worth when they died;
• the value of any trust from which the dead person benefited;
• the value of any gifts the person made in the seven years before they died, or longer if they 'reserved an interest'. (An example of reserving an interest would be if they gave away their house on the condition that they were allowed to live there free of charge until they died.)

If all these add up to more than a certain amount (called the 'nil rate band'), the estate has to pay inheritance tax at 40 per cent on the sum of money above this amount. The amount is currently £325,000, but it is reviewed every year.

Any gifts over £3,000 made by the dead person in the seven years before they died will be taken into account in considering inheritance tax. However, if they gave away their house on the condition that they were allowed to live in it free of charge until they died ('reserving an interest'), they continued to benefit from the gifted property and no time limit applies. So the house will still be considered part of their estate for the purpose of calculating inheritance tax. The value of the house at the time they gave it away will have to be added to their estate.

Individual gifts of £250 and larger gifts totalling less than £3,000 a year are not counted.

Many allowances can reduce this tax. The most important arises if you leave everything to your husband or wife, because they will not have to pay any inheritance tax. But inheritance tax is complicated, so you should get specialist legal advice straight away if you are an executor and the Probate Registry tells you that you may have to pay inheritance tax. The cost of legal advice will be paid out of the estate. If you get it wrong, and pay the beneficiary without paying the tax you may have to pay tax out of your own pocket.

The executors or administrators are responsible for paying any inheritance tax that is due out of the assets of the estate, and it is due six months after the end of the month in which the person died. Some or all of the inheritance tax will have to be paid to obtain probate or letters of administration.