Once all of the deceased's Estate has been accounted for the Executors should carry out a review of all Assets, and debts (including personal expenses) to ensure that the correct amount of Inheritance Tax has been paid.
Any over or under payment can be reviewed with the tax office at this stage and a final adjustment made.
The differences should be seen in the 'Assets Spreadsheet' as it has been updated.

The final distribution of gifts can take place and the Accounts closed.

Inheritance Tax

Not all of the deceased's estate will be subject to Inheritance Tax, and the situation should become clear as the process proceeds.

At the time of writing the first £300,000 (tax year 2006/2007) or £275,000 (tax year 2005/2006) or £263,000 (tax year 2004/2005) of an Estate is exempt from Inheritance Tax. After this there is a single tax rate of 40% that is applied to the remainder of the Estate after all debts and expenses have been deducted.

The Estate will comprise the value of all assets and monies at the time of death plus any gifts exceeding the £3000 limit that have been made within the previous seven years and the value of any trust from which the deceased has received an income.

Consequently the Executors or Administrators will need to establish whether or not any such gifts have been made, which might need to be taken into account for Inheritance Tax purposes.

An example is provided in the 'Assets spreadsheet' to clarify this matter, however, where there are additional complications the Inland Revenue will provide a definitive answer.

There are some additional factors that should be taken into account in order to reduce the impact of Inheritance Tax, namely:

1 Annual gift exemption

Gifts up to a total value of £3000 can be made each year free of IHT.

Any number of gifts up to £250, to separate people can be made in any one year.

Each parent can make a gift of up to £5000 to a child on his or her marriage.

Each grandparent can make a gift of up to £2500 to a grandchild on his or her marriage.

£1000 can be gifted for any couple on their marriage.

As mentioned above, the Executors or Administrators will need to establish whether or not the deceased made any such gifts, and if so, whether they can be ignored as being exempt for Inheritance Tax purposes. Note: gifts of this nature will attract reduced IHT over time.

2 Wholly exempt gifts

Gifts between husband and wife.

3 Funeral expenses

4 Any debts existing before the death

5 Business and Agricultural properties

Note: Relief from IHT can be available under this heading. The position would need to be properly established and you will probably need to seek legal advice.

Payment of Inheritance Tax (IHT)

IHT is due to be paid within six months of the end of the month in which the death occurred. Where this time is exceeded the Inland Revenue may charge interest on the amount owing. There are some circumstances where payment can be made by instalments, or delayed due to asset valuation changes etc. However, it is important to clarify and agree the position with the Inland Revenue beforehand.