Who pays Inheritance tax?

If there’s a will, it’s usually the executor of the will who arranges to pay the Inheritance Tax. If there isn’t a will, it’s the administrator of the estate who does this.

IHT can be paid from funds within the estate, or from money raised from the sale of the assets.

However, in practice, most IHT is paid through the Direct Payment Scheme (DPS). This means, if the person who died had money in a bank or building society account, the person dealing with the estate can ask for all or some of the IHT due to be paid directly from the account through the DPS.

Sometimes the person who died has left money to pay IHT. This is usually arranged through a whole-of-life insurance policy, which remains in force until the policyholder’s death (as long as the premiums are paid).

Payments from a life insurance policy could be subject to IHT. But, by writing the policy in Trust, the tax should be avoided. This way, you also avoid going through the often-lengthy probate process.

When the tax and debts are paid, the executor or administrator can distribute what remains of the estate.

For tax advice, consult a qualified accountant.