Inheritance Tax: Advice To Executors

Inheritance tax

Advice to executors of an estate

The recent crackdown on tax evasion means the tax authorities are almost certain to be taking a closer look at the payment of inheritance tax. Typically, the estates of around 15,000 people are liable to inheritance tax each year and many of these are dealt with by a family member or friend acting as a lay executor. Executors can be personally liable in the event of mistakes - not to mention the potential for further investigation of their tax affairs - meaning accuracy is essential.

This Briefing Note provides some practical advice for executors of an estate and highlights common pitfalls.

What are my main responsibilities as an executor?

Essentially, the executor's job is to administer the estate of the deceased according to his or her wishes as stated in the Will. This means collecting all assets, paying any debts and distributing what is left to the beneficiaries. If the estate - that is the value of all the individual's assets including cash, possessions, property and any investments minus any debts - exceeds the 'nil rate band' then the executor is responsible for submitting a tax return (IHT400) to HM Revenue and Customs (HMRC).

Usually where no inheritance tax is due, the estate is referred to as an 'excepted estate' and a simpler IHT205 can be submitted to HMRC.

How can I get hold of the Will and essential documents?

Firstly, go through the deceased's files to find key items such as the Will and bank statements. If you can't find their Will, it's worth contacting their solicitor or bank. Banks routinely keep Wills in safe custody for clients. If the deceased did not make regular use of a solicitor, a first port of call would be the firm who advised on the purchase or sale of their home or a divorce, if appropriate.

Bank statements are invaluable as they reveal standing orders, direct debits and sources of income which may indicate life insurance policies or similar which you will have to trace in order to ascertain their value. A copy of a previous tax return, if prepared, is also helpful as it should highlight all income producing assets and any interest in trusts. You also need to find out if the deceased had a shared interest in property as this will also count towards the value of their estate.

How long do I have to carry out my duties as executor?

If the estate owes Inheritance Tax, you won't get the grant of probate unless you pay some or all of the IHT first. The 'due date' is...