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Don’t Get Caught With A Bill for Inheritance Tax

There is a lot of work that goes into being the executor of someone’s estate. And it will take you a lot of time to get everything done, which is particularly hard if you also have a full time job. But did you know it could also cost you a lot of money too?

That’s because executors can end up being the ones that have to pay the inheritance tax bill due to HMRC’s time limits on payments. Although it would be great to use money from the estate to pay this potentially large bill, the time limit may not allow for this, which is when the executor has to put their hand in their own pocket.

The insurer Royal London looked into the kinds of financial difficulties that arise when someone dies, and this catch 22 situation was unearthed many times. The big problem is that the tax needs to be paid, but the money from the estate isn’t available until the property is sold. The executor is therefore liable for the tax bill. The Royal London, as well as other companies, are asking for more time for the IHT to be paid – preferably until after the assets are released or the property is sold. This is especially important when the estate is a complicated one.

The time limit in place at the moment is six months. So, by the end of the sixth money after the death, the bill must be paid. If it is not, interest will be charged. This is not so much a problem with a simple estate, which generally can be completed within three to six months, but probate for a complex estate can take as much as a year – or even more – which is obviously outside of the time limit set by the government. So in this case, the executor has to pay, and reclaim the money later, from the estate.

One way around this problem is an installment system. HRMC offers this for some estates and some assets. The tax can be paid in installments over 10 years – but interest will be charged. However, once the asset is sold, the full amount will be due.

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