Can you afford to be an executor?

More and more people who take on the role of executor, perhaps motivated by a desire to protect their loved one’s peace of mind, are finding themselves having to foot the deceased person’s inheritance tax (IHT) bill, warned Money Observer recently, due to HM Revenue & Customs time limits on paying.

With the growth in property prices pushing more and more people out of the nil-rate IHT band (HMRC figures show around 19,000 estates were liable for inheritance in 2013/14 and this is set to rise to around 30,000 estates in 2016/17, this dilemma is becoming more and more common.

Recent research by Royal London confirms this growing problem and has led them calling for HMRC to allow people more time to pay IHT bills, where more complex estates are being gathered in, a move we applaud.

You can protect your personal executors from such pressure right now though, by assigning a professional executor to take care of all legal and financial matters alongside them. We highly recommend this approach and, as reported earlier this month ((https://activewills.com/blog/been-asked-to-be-an-executor-will)), 62% of people who write a Will online with ActiveWills’ online Will template choose to use our parent company, Honey Legal, as an executor.

Before you make any decisions, here’s a handy roundup of the facts you need to be aware of.

Who has to pay IHT?

Executors of estates that are worth over £325,000 have to pay IHT. 

There are exceptions. 

Gifts left to spouses, civil partners and charities are not liable for IHT, so, if once you remove these from the value of the estate, the estate is worth less than £325,00, there is no unsued IHT to pay. 

If the person whose estate you are administering had a spouse or a civil partner who died before them – you do not have to start paying IHT on any amount below £650,000, as they are allowed to use their partners’ IHT allowance as well as their own Residence Nil Rate Allowance - as long as they meet the criteria.

From 2020 these thresholds (the nil-band rates) will increase to £500,000 for individuals passing on a property on to children or grandchildren (£1 million for couples), thanks to a new family home allowance.

So, what are the current rules on paying IHT?

IHT must be paid by the end of the sixth month after death. If it is not paid within this timeframe, the executor will be charged interest on the amount owed.

How long does it take to wrap up an estate after someone has died?

A simple estate takes, on average, 6 to 18 months. More complicated estates, where assets need to be sold and potential creditors found, can take 12 to 24 months.

How can you ensure your estate is easy to wrap up?

The most common causes of delays are lost paperwork and inaccurate record keeping, so, make sure your paperwork is all in one place, your executors know where that is and your records are up to date.

If your estate does take more than six months to wrap up, how can your executor fund your IHT?

Historically, most estates falling into IHT do have some cash assets, such as shares, savings and pension funds that can be accessed to pay IHT. As pointed out earlier though, it is the increasing price of properties that is pushing more and more estates into IHT territory. We are witnessing more and more estates where the only asset is property and land. Such assets have to be sold (or a rental income gained from them) before cash becomes available to pay IHT, leaving the executor liable.

In this situation, your executor can apply to HMRC to pay IHT over ten years in instalments. They will be charged interest though and will have to pay the full amount upon sale of the property or land (to do this they need an IHT400 form).

We’ve written more about this in our blogs ‘Been Asked to Be an Executor? ‘ and ‘How to Choose Your Executor’. As we pointed out then, professionals from our parent company Honey Legal have been appointed as executors for UK estates valued together in access of £2.3billion. Appointing us as your executor also gives you a free legal check on your Will (usual price £35), which often flags up more tax efficient ways to manage your estate whilst you are alive, as well as after you die.

Of course, all of this means nothing if you don’t have a Will. Why not write a Will online now, using our best practice template, or arrange a home visit with a Will writing expert?