Archive Website of the UK government

When the executor pays Inheritance Tax

Usually, the executor, personal representative or administrator (for estates where there's no will) pays Inheritance Tax on any assets in the deceased’s estate that are not held in trust.

The money generally comes from the deceased person’s estate.

However, because the tax must be paid within six months of the death and before the grant of probate can be issued (or grant of confirmation in Scotland), sometimes the executor has to borrow the money or pay it from their own funds. This can happen if it hasn’t been possible to get the money from the estate in time because it's tied up in assets that have to be sold.

In these cases, the executor or the people who have advanced the money can be reimbursed from the estate before it's distributed among the beneficiaries (see the section below on ‘Recovering your money if you paid Inheritance Tax for someone else’).

• When Inheritance Tax is due - payment deadlines

When a trustee pays Inheritance Tax

Inheritance Tax on transfers into trust is only necessary if the total transfer amount is above the Inheritance Tax threshold. It's usually payable by the person making the transfer(s) - known as the ‘settlor’ - not the trustees.

The trustees must pay any Inheritance Tax due on land or assets already held in trust. The occasions for this include:

• a transfer out of trust (known as the ‘exit charge’)
• every ten years after the original transfer into trust (known as the ‘ten-year anniversary charge’)
• when the beneficiary of the trust (known as the ‘life tenant’) dies - interest in possession trusts only
  

• Trusts and Inheritance Tax

When a beneficiary or a 'donee' has to pay Inheritance Tax

If the executor or the trustees can’t pay the Inheritance Tax, the beneficiaries or 'donees' (recipients of gifts made during a person's lifetime) may have to pay it. A beneficiary or donee only has to pay Inheritance Tax in this case if:

• they receive a share of an estate after a death
• they receive a gift from someone who dies within seven years of making the gift
• they benefit from assets in a trust at the time of death or receive income from those assets
• they are the joint owner - other than a spouse or a civil partner - of a property
  

Here are some examples of when a beneficiary or donee might have to pay Inheritance Tax.

Example one

If someone gives you a gift and they do not survive for seven years after making the gift, you would only be liable to pay Inheritance Tax on that gift if the value of the estate - including the gift - is over the Inheritance Tax threshold (£325,000 in 2012-13 tax year) and there is not enough money in the estate to pay the Inheritance Tax.

However, if all the gifts made by that person during the seven years before they died add up to more than the Inheritance Tax threshold (£325,000 in 2012-13 tax year) - just the gifts themselves not the rest of the estate - Inheritance Tax will be due on all of the gifts that brought the total above the threshold. In this case, you as the donee will usually have to pay the tax due on your gift.

• How to value gifts for Inheritance Tax

Example two

Someone dies and they own property as ‘joint tenants’ with you, but you are not their spouse or civil partner. Inheritance Tax may be payable on their share of the joint property if the total value of their estate is more than the threshold (£325,000 in 2012-13 tax year). As the surviving joint owner, you would be responsible for paying the Inheritance Tax.

If the deceased said in their will that joint property held as ‘tenants in common’ should be given ‘free of tax’, the Inheritance Tax will come from the rest of their estate (if there is enough money in the estate to pay the tax). If there isn't, you will have to pay the difference.

• Tax when you inherit money, assets or property

• Inheritance Tax and passing on your home to your children

Recovering your money if you paid Inheritance Tax for someone else

If you have paid the Inheritance Tax due on behalf of someone else, you are entitled to claim the money back from the estate or from whoever should have paid the Inheritance Tax. You can do this once probate (or confirmation) has been granted and before the estate is distributed among the beneficiaries.

More help?

• Contact the Probate and Inheritance Tax Helpline

More useful links

• Find out more about Inheritance Tax on gifts

• When Inheritance Tax is due - payment deadlines

Useful contacts

• Probate and Inheritance Tax Helpline