Helping executors and administrators with inheritance tax

10 December 2024

Dealing with Inheritance Tax (IHT) is one of the many responsibilities that come with being an executor or administrator of an estate. It’s a task that requires care and attention, particularly given the recent changes announced in the Autumn Budget 2024.

Whether you’re managing a loved one’s estate or acting in a professional capacity, understanding IHT is an essential part of the process. From reporting the estate’s value to ensuring the right amount of tax is paid, there’s a lot to consider.

In this article, we’ll guide you through the basics of IHT, explain the latest updates that may affect estates, and highlight how probate accountants can provide valuable support during this time.

What is inheritance tax (IHT)?

Inheritance Tax (IHT) is a tax on the estate of someone who has passed away. This includes their property, possessions, and money. The amount of IHT owed depends on the value of the estate and any allowances or reliefs that apply.

Currently, the standard nil-rate band (the threshold before IHT is charged) is £325,000. This means estates valued below this amount are not subject to IHT. For estates above this threshold, IHT is charged at 40% on the remaining value.

In addition to the standard nil-rate band, there’s the residence nil-rate band, an additional allowance for estates that include a family home being passed to direct descendants. Together, these thresholds can significantly reduce the amount of IHT payable.

However, recent changes announced in the Autumn Budget 2024 mean some estates may now face higher IHT liabilities. It’s important for executors and administrators to understand how these changes apply, which we’ll explore in more detail.

What’s changing? Updates to inheritance tax after the Autumn Budget 2024

The Autumn Budget 2024 brought some important updates to Inheritance Tax (IHT) that may affect the way estates are managed. Here’s a quick look at the key changes:

1. No increase to the nil-rate band
   The nil-rate band—the threshold below which estates don’t pay IHT – will stay at £325,000 until 2030. While this amount hasn’t changed, rising property prices and inflation mean more estates might end up paying IHT. This freeze could result in higher tax bills for some estates over time.
2. Pensions now count towards estates
   Starting in April 2027, any unused pension funds will be included in the total value of an estate for IHT purposes. Previously, pensions were usually excluded, so this is a big change. If someone leaves behind a pension they haven’t used, it could now be subject to the 40% IHT rate.
3. Changes to relief for farms and businesses
   From April 2026, agricultural and business properties will have new limits on the relief they can claim. The first £1 million of qualifying property will still get full relief, but anything above this will now be taxed at 20%. For larger estates, this could mean more tax to pay.

Executors and administrators will need to keep these updates in mind when valuing estates and planning any tax payments.

What executors and administrators need to know about IHT

As an executor or administrator, one of your responsibilities is ensuring that any Inheritance Tax due is calculated, reported, and paid correctly. This can feel like a lot to handle, especially alongside other duties like managing the estate and distributing assets to beneficiaries.

Here’s a rundown of what’s involved:

1. Valuing the estate
   Before you can calculate any tax, you’ll need to figure out the total value of the estate. This includes property, savings, investments, personal belongings, and any other assets, as well as subtracting liabilities like mortgages or outstanding debts.
2. Checking allowances and reliefs
   Once you’ve got a clear picture of the estate’s value, the next step is to see which allowances and reliefs apply. This could include the nil-rate band, residence nil-rate band, or specific reliefs for business or agricultural property.
3. Reporting to HMRC
   Executors need to submit a detailed account of the estate’s value and any IHT owed to HMRC. This is typically done using specific forms and must be completed within six months of the person’s death to avoid penalties or interest.
4. Paying the IHT
   In most cases, IHT needs to be paid before probate can be granted. Executors might use funds from the estate to cover this, or arrange a loan if the estate is tied up in property or other assets.

It’s important to keep accurate records at every stage, as HMRC may ask for evidence of how valuations and calculations were made. While these steps can feel overwhelming, professional support from probate accountants can help make the process smoother and ensure everything is handled correctly.

How probate accountants like Simon & Co can support you

At Simon & Co, we understand the responsibilities executors and administrators face when managing an estate. As specialists in probate, we’re here to make sure every step of the Inheritance Tax process is handled carefully and accurately.

Our team works closely with you to value the estate, ensuring all assets – from property to pensions – are accounted for.  We also take care of applying the right allowances and reliefs, to ensure the estate’s tax obligations are fair. From preparing and submitting tax returns to arranging payments, we take on the practical tasks so you can focus on other aspects of your role.