Over the last eighteen months, we have all put some aspects of our lives on hold. Some people have missed celebrations for milestone birthdays, cancelled weddings and holidays. Sadly, some of us have also lost loved ones and have not been able to grieve and deal with the administration of the estate due to difficulties in their own lives, such as being furloughed or being made redundant. Many businesses have also struggled to operate remotely and as a result, customers have found it difficult to get in touch and have been subject to significant delays, which has led to the “I will deal with it later” mentality.
As things start returning to “normal”, it is important to look at what needs to be addressed and whether delaying dealing with an estate administration has any detrimental effects.
Six months after dated of death - Inheritance Tax is due. If the deceased died in January, Inheritance Tax is due by 31st July. If the Inheritance Tax is not paid by the deadline, interest will start accruing. From the 7th April 2020, the interest rate is 2.6%, and this can change from time to time.
One year from date of death – If the personal representatives need to complete the IHT400 Inheritance Tax account, it must be submitted within twelve months of the date of death; otherwise, a penalty will be payable, and of course, interest will also be accruing on any Inheritance Tax payable. The penalty starts at £100 but can be up to £3200 depending on the circumstances.
Two years from date of death - There is a deadline to claim additional Inheritance Tax reliefs such as the Residence Nil Rate Band (which can be up to a further £350,000 for a married couple on second death) or a Transferable Nil Rate Band of a deceased spouse (which can be up to a further £325,000). Neither exemption is automatically applied and must be claimed.
The total saving can be up to £270,000!
- For those beneficiaries who have taxable estates of their own, Deeds of Variation can be a useful way of diverting their inheritance to a third party so that is it treated for Inheritance Tax purposes as if the gift was made by the deceased instead of being subject to the seven-year survivorship rule which potentially increases the chance of paying Inheritance Tax unnecessarily.
If you are a personal representative of an estate and have not yet started to administer it, be mindful that you have duties to comply with, including administering an estate in a timely manner and maximising the estate passing to beneficiaries.
Personal representatives are personally liable for any loss.
If you require any assistance in administering an estate, please contact our Wills, Trusts & Probate Team below.