Who Pays Inheritance Tax When Someone Dies?

When someone dies, the people named as executors in their will (or administrators, appointed under the intestacy rules if there is no will) are responsible for administering the estate, which includes reporting its value to HM Revenue and Customs and paying any inheritance tax due. This is done as part of the process of applying for probate or letters of administration, the legal authority to deal with the estate.

Executors typically need to complete a return giving details of the estate's assets, debts and any gifts made in the years before death. Depending on the value and complexity of the estate, this might be a simpler return for smaller, straightforward estates or a more detailed account for larger or more complex ones. The exact forms and thresholds are set by HMRC and can change, so it is worth checking current GOV.UK guidance when the time comes.

Any inheritance tax due generally must be paid by the end of the sixth month after the person died, for example by 30 September for a death in March. This deadline applies even if the estate has not yet been fully valued or probate has not yet been granted, which can create pressure on executors to act promptly, particularly where the estate includes property or other assets that take time to value accurately.

If tax is not paid by this deadline, interest is charged on the outstanding amount, which increases the eventual cost to the estate. There is a facility to pay tax on certain assets, like land and some business interests, in instalments over a number of years, though interest may still apply, and this option needs to be arranged correctly with HMRC.

A practical difficulty many executors face is that inheritance tax often needs to be paid before probate is granted, but the estate's bank accounts may be frozen until probate is obtained, creating a chicken-and-egg problem. There are ways around this, including the Direct Payment Scheme, which allows some banks to pay inheritance tax directly to HMRC from the deceased's accounts before probate, and executors' loans in more complex cases.

This is one of the more stressful parts of estate administration for many executors, and it is worth being aware of early, particularly for larger estates where a significant tax bill is expected.

While inheritance tax on the estate itself is normally paid by executors, there are situations where individuals can become personally liable, most notably for lifetime gifts made within seven years of death. If such a gift becomes taxable and the person who died did not pay tax on it during their lifetime, the recipient of the gift can, in some circumstances, be asked to pay the tax due, particularly if the estate itself does not have enough funds to cover it.

This is a specialist area, and the rules around taper relief, which reduces the tax rate on gifts made between three and seven years before death, and the order in which gifts and the estate are assessed, are detailed enough that professional advice is usually worthwhile if significant lifetime gifts have been made.

A clear will, together with organised records of your assets, debts and any significant gifts, makes the process of reporting and paying inheritance tax considerably easier for your executors. My Posh Will is an online guided will service for England and Wales that helps you record your wishes and appoint executors clearly, with a single will costing £69 and mirror wills costing £89, both one-off payments with lifetime access.

If your estate is likely to face a significant inheritance tax bill, or if you have made substantial lifetime gifts, use our suitability check to see whether you and your executors would benefit from advice from a solicitor or tax adviser in advance.