There are two types of tax. The central government tax and the state government tax. Normally all land and land reform taxes come under state taxes.
The Inheritance Tax or Ancestral Property Tax is a state tax that you give the government when you receive property or money from the dead person or estate. The estate is not bound to pay the taxes, as it is the responsibility of the beneficiary of the property to pay the tax.
Who is responsible to pay the Inheritance Tax?
It is the duty of the beneficiary to pay the property taxes if there is a will, where the beneficiary has been marked as the executor of the estate. The administrator of the estate should arrange for the property taxes in case there is no will. If there is a situation where the estate has no money to pay the property tax, then it should be arranged from either the estate fund or liquidation or sale of part of the estate property.
There are times where the deceased person has already arranged for the payment of this Ancestral Tax or Inherited Tax during their tenure of living. Also, there can be a situation where the Inheritance Tax bill has already been covered up with the amount of the deceased person’s life insurance policy.
The administrator or the executor can only distribute what remains of the estate property to its beneficiary or heirs once all the debts and the tax are settled.
When should an individual pay the (IHT) Inheritance Tax
The Inheritance Tax comes into the limelight once the executor of the estate has divided up the assets and distributed them among the beneficiaries. It is mandatory for all the beneficiary to pay the tax as the amount of tax is calculated individually for every single beneficiary.
For instance, the property valuation of the estate which is more than 2 million has to pay the property, Therefore, if your friend leaves you tax of 5% of the remaining valuation. This means if the property valuation is $6 million the individual has to pay property tax for 5% of $4 million.
The beneficiary should disclose this information on a predefined state government tax form which is generally known as Inheritance Tax form.
After the death of a person, the beneficiary who has been marked in the will is to be entitled as the estate administrator or the estate executor. This Ancestral Property Tax should generally be paid within half of the year post the person’s death if the estate falls above a specific limit.
In case the Inheritence Tax is not paid by this pan of time then HM Revenue and Customs i.e HMRC will charge the consequent interest. The outstanding amount of tax will still get charged interest even though executors can choose to pay tax on assets, like property, by a 10 years installment.
The executors must clear all the property taxes in case the asset is already sold. To avoid late payment interest it is a clever move by the executor to pay the Inheritance Tax even if the valuation of the estate is not complete. The executor should remember to pay this tax within a time span of half a year after the death of the ancestor.