Inheritance Tax: How does the Direct Payment Scheme work and what do you need to do?
Inheritance tax can be a complicated levy to work out for many people. Currently, there are thresholds in place to work out how much, if any, tax is due on an estate. If the value of the estate is below £325,000 there will likely be no IHT to pay at all. Estates valued above this though may have to pay 40 percent on the assets which can include cash, possessions and property.
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Evaluating the estate and then working out where payment is due can be a laborious process but the government has procedures in place to help where possible.
The state allows people to request that some or all of the IHT bill is paid though NS&I, banks or building societies belonging to the deceased persons accounts.
Money will be paid from these accounts directly to HMRC through what is known as the “Direct Payment Scheme”.
To get this process started, individuals involved will need to take certain actions.
To start with, the deceased person’s bank or building society will need to be contacted and the person contacting them will need to ask to be made a “personal representative”.
The person doing this will likely be a relative or inheritor of the assets.
This part of the process will be different for everyone as every company involved will have a different procedure in place.
However, it shouldn’t take too long as the person involved will not need to wait for a “grant of representation” before contacting companies.
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From here, an Inheritance Tax payment reference number will be needed.
This will be required at least three weeks before a final payment is made and it can be applied for online or by post.
Once this number is received, a “IHT423” form will need to be completed and sent to the corresponding banks and building societies. A separate form will be needed for each individual company that is contacted.
This form can be found on the government’s website and it requires account details and declarations from the representatives.
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The final step of the process requires a few more forms, all of which can be found online.
An IHT account form IHT 400, probate summary form IHT421 and any other supplementary documents will need to be sent to HMRC.
From this point on, the payments should be handled directly between HMRC and the deceased’s bank or building society accounts.
Once all the payments have gone through HMRC will contact the people involved to let them know it’s been paid.
IHT is generally unpopular with the population, it is often referred to as the “death tax”.
The tax has been touted as being out of touch as it should only really affect wealthy families. However, the rising of house prices has unintentionally pushed more families into the target area for this tax.
There are also many loopholes within the IHT system that can be exploited, with some finding this unfair.
Because of this, many will be keeping an eye on any changes made to IHT in the upcoming budget, which is to be laid out on 11 March 2020.
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