It must have been many years since I last watched EastEnders, but an article I read over the weekend serves as a reminder about Inheritance Tax (IHT) and how to deal with the payment of IHT after someone’s death, particularly if you want to keep their home and there are insufficient liquid assets to pay the IHT.
Following the death of Dot Cotton, her step-granddaughter Sonia inherited her property and needs to pay IHT of £196,000 to keep the property. The freezing of IHT allowances since 2009 versus increasing house prices has seen a record number of estates being subject to IHT, compared to previous years. Whist we do not know the exact value of Dot’s property in fictional Walford, the value of someone’s estate when they die has to be assessed for IHT purposes and, where the estate exceeds their available IHT allowances (including the addition of any gifts made in the seven years before their death), the balance is taxed at 40%.
It is understandable that where a beneficiary such as Sonia inherits a whole property and is faced with an IHT liability of £196,000, this can be incredibly daunting, together with the fear and worry about how the IHT is going to be paid. For inherited assets of property and land, it is possible to pay IHT over a period of 10 yearly instalments (although there will be the addition of interest on the outstanding sum by HMRC). The other option is for a beneficiary to pay the arising IHT from their own funds, or by raising a mortgage to pay the IHT that is due. It is also possible that the will might dictate where the IHT is going to be paid from, i.e. does the beneficiary receive the property free of IHT (so the IHT is paid from the deceased’s wider estate) or subject to IHT (so it is paid from the beneficiary’s inheritance or assets and not from the wider estate).
Whilst the fictional world of Walford plays on our television screens most week day evenings, it does serve as a useful reminder about the importance of taking advice about your will to ensure that the beneficiary that you wish to inherit a property (or properties) after your death is sufficiently catered for to pay the IHT. As referred to above, specifying in your will where the IHT should be paid from can sometimes help avoid disputes or problems following your death.
For more information about wills, please contact the team firstname.lastname@example.org.