What taxes have to be paid when someone dies in the UK?

Full answer

Three separate taxes can apply when someone dies in the UK, and the executor or personal representative is responsible for sorting them out before assets pass to beneficiaries. Inheritance Tax (IHT) is the main one. Each person has a nil-rate band of GBP 325,000, plus a residence nil-rate band of up to GBP 175,000 when a home is left to direct descendants such as children or grandchildren. The estate value above the available bands is taxed at 40%, reduced to 36% if at least 10% of the net estate is left to charity. Anything passing to a spouse or civil partner is generally exempt, and any unused nil-rate band can transfer to a surviving spouse (the transferable nil-rate band). IHT is normally due within 6 months of the end of the month of death. Income Tax splits into two periods. First, the deceased's own income up to the date of death is reconciled -- they keep their Personal Allowance of GBP 12,570 and normal bands (20% basic, 40% higher, 45% additional), and HMRC may issue a refund or a bill. Second, during the administration period the estate itself may earn income -- bank interest, dividends or rent -- which the estate pays tax on (the estate does not get a Personal Allowance), and beneficiaries account for their share. Capital Gains Tax can also apply. On death, assets are revalued to their date-of-death market value, so prior gains are wiped out for IHT purposes. But if the estate later sells an asset for more than that probate value, the estate pays CGT on the rise -- 24% on most assets, 18% to the extent gains fall in the basic-rate band, with the GBP 3,000 annual exempt amount available for the year of death and the two following tax years. Given the interaction of these taxes, model the estate carefully and seek professional advice for larger estates.

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