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Who shoulders the IHT burden?

To be able to arrange life insurance to pay off an inheritance tax liability, you need to know who is primarily liable to pay the tax.

Unless the policy is capable of paying out to the person liable, it is not fulfilling its function.

In addition, you will need to know how much of a gift is actually or potentially chargeable, so it is essential to understand the exemptions that may or may not apply.

As most gifts do not come into charge until the donor dies, there should be evidence that exemptions apply as it is then too late to do anything about it – the person most closely associated with the case is not around to argue the point.

The primary liability to IHT depends on how the liability arises.

Chargeable lifetime transfers

Most chargeable lifetime transfers occur as a result of gifts into discretionary trusts. The primary people responsible for the tax are the trustees of the discretionary trust. Where the tax is not paid, however, the beneficiaries of the trust may also be liable.

Where no trust is involved, the donor is the person primarily responsible. However, where the tax is not paid, the donee can also be liable.

Potentially exempt transfers

Pets only come into charge if the donor dies within seven years of making the gift. If such a gift is brought into charge, the person primarily responsible for the tax is:

l Trusts – trustees but recourse to beneficiaries.

l Otherwise – donee.

The personal representatives of the deceased can also be liable if the tax remains unpaid 12 months from the end of the month in which death occurs.


Generally speaking, the persons liable are:

l Personal representatives.

l Trustees of any trust created.

l Beneficiaries to whom any property passes.

l Beneficiaries of a trust.

The person who pays the tax need not be the person responsible for paying it.

In many cases, the personal representatives pay the IHT due but then recover it from the estate. You can get a certificate from the Capital Taxes Office specifying the tax and, if applicable, any interest paid together with any debts deducted in calculating the liability.

Care should be taken that, where property is left to beneficiaries free of tax, the IHT liability is deducted from the balance of the estate.

When is IHT due? Generally speaking, this is six months from the end of the month in which the death occurred. The tax on a deceased person&#39s estate must be paid before the delivery of the account to the Probate Registry (Commissary Office or Sheriff Court in Scotland). Interest must be paid from the due date to the date of payment.

Tax may be paid in installments in certain circumstances, in which case an election must be made in writing. Tax payable in respect of the following may be paid in installments:

l Land and buildings.

l Shares giving the transferor control of a company.

l Certain unquoted shares not giving control.

l The net value of a business/interest in a business.

l Timber.

Where instalments are possible, tax is payable in 10 equal yearly amounts, with the first payable on the date the tax would have been due.

Each instalment is interest-free if paid on time except for tax on land and buildings. If a property is sold, all the outstanding tax is then payable.

The Inland Revenue will generally accept works of art or other items of national, scientific, historic or artistic interest in lieu of tax due.

Next week I will look at the various reliefs that are available.


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