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TonyTax
TonyTax, Tax Consultant
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Ive been told that inheritance tax must be paid before the

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I've been told that inheritance tax must be paid before the beneficiaries can receive the inheritance. Is this true? It seems odd, since they probably won't have the money to pay it till they get the inheritance.

I'm asking because I've been advised to take out a life insurance policy (at a cost of £72 per month) that will pay out to my heirs so they can use it to pay the inheritance tax. Is this really the only way to avoid this apparently circular problem?
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.

Hi.

There is a table which tells you when Inheritance Tax is payable here.

The heirs to your estate do not pay the IHT liability, the executor of the estate does. Normally, if there is not sufficient cash in an estate, assets have to be sold so that the IHT can be paid. What is left is then distributed to the heirs or beneficiaries.

If the life assurance policy is written in trust for your heirs, the proceeds of that policy will not form part of your estate for Inheritance Tax purposes as it will belong to your heirs and so will escape any IHT liability. If it is not written in trust then the proceeds will form part of your estate for IHT purposes.

Given that the executor of your estate has six months after your passing to settle any liability to IHT, that should be time enough for the life policy to pay out and for any IHT liability to be paid using as much as necessary of that money, after which the non-liquid estate assets can be released to the heirs.

I hope this helps but let me know if you have any further questions.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15886
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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