In­her­it­ance: The Pro­cess Ex­plained

In­her­it­ance in the UK can be a com­plex pro­cess, in­volving legal and fin­an­cial steps to ensure that a de­ceased person's estate is dis­trib­uted ac­cording to their Will, or in line with in­test­acy rules if no Will exists.

Un­der­stand­ing the in­her­it­ance pro­cess is cru­cial to avoid­ing delays and po­ten­tial dis­putes among be­ne­fi­ciar­ies. From ob­tain­ing a Grant of Pro­bate to nav­ig­at­ing in­her­it­ance tax laws, this art­icle will guide you through the key stages in­volved in man­aging an estate in the UK, provid­ing clar­ity on the rights and re­spons­ib­il­it­ies of ex­ecut­ors, heirs, and other parties in­volved.

In­her­it­ance Pro­cess Step-by-Step

The UK's in­her­it­ance pro­cess is a com­plex fin­an­cial journey that can sig­ni­fic­antly impact wealth trans­fer.

Here's what you need to know:

1. Death Re­gis­tra­tion: The clock starts tick­ing with the legal re­quire­ment to re­gister the death within 5-8 days.
2. Will Loc­a­tion: This doc­u­ment is cru­cial. It names ex­ecut­ors who'll manage the estate. No Will? In­test­acy rules kick in, ap­point­ing an ad­min­is­trator.
3. Legal Au­thor­ity: Ex­ecut­ors apply for pro­bate; ad­min­is­trat­ors for let­ters of ad­min­is­tra­tion. This grants them power over the de­ceased's assets.
4. Estate Valu­ation: A com­pre­hens­ive tally of assets and li­ab­il­it­ies, in­clud­ing recent gifts, is es­sen­tial for tax pur­poses.
5. In­her­it­ance Tax (IHT): The big one. Es­tates over £325,000 face a 40% tax rate on the excess. However, re­liefs like the res­id­ence nil-rate band can offer sig­ni­fic­ant sav­ings.
6. Debt Set­tle­ment and Dis­tri­bu­tion: Only after clear­ing IHT and other debts can the re­main­ing assets be dis­trib­uted.

1. In­her­it­ance and Death Re­gis­tra­tion

Re­gis­ter­ing the death is a legal re­quire­ment and must be done within five days in Eng­land, Wales, and Northern Ire­land (or within eight days in Scot­land).

The death should be re­gistered at the local re­gister office in the area where the person passed away. A medical cer­ti­fic­ate con­firm­ing the cause of death, issued by a doctor or cor­oner, is needed to re­gister the death.

The person re­gis­ter­ing the death, often a close re­lat­ive or ex­ecut­or, will need to provide the de­ceased's

• full name,
• ad­dress,
• date, and
• place of birth,
• oc­cu­pa­tion, and
• de­tails of their sur­viv­ing spouse or civil part­ner.

After the re­gis­tra­tion, they will be issued a death cer­ti­fic­ate, which is es­sen­tial for deal­ing with the de­ceased’s af­fairs, in­clud­ing clos­ing bank ac­coun­ts, hand­ling pen­sions, and starting the in­her­it­ance pro­cess.

2. In­her­it­ance and Loc­at­ing the Will

To locate a Will in the UK after someone has passed away, begin by search­ing through the de­ceased's per­son­al be­long­ings and im­port­ant doc­u­ments at home or in a safe place.

Con­tact their so­li­citor, as they may have a copy of the Will or have stored the Will for safe­keep­ing. Check with the de­ceased’s bank if they had a safety de­posit box. You can also search the Na­tion­al Will Re­gister, where some Wills are re­gistered. If pro­bate has been granted, you can re­quest a copy from the Pro­bate Re­gis­try.

Ad­di­tion­ally, reach out to family mem­bers or the ex­ecut­or, as they might know its loc­a­tion. If no Will is found, the estate will be handled under in­test­acy rules.

Read more: Find­ing a Will

3. In­her­it­ance and Legal Au­thor­it­ies

In the UK, the legal au­thor­ity to manage and dis­tribute the assets of a de­ceased person’s estate is granted through either pro­bate or let­ters of ad­min­is­tra­tion, de­pend­ing on whet­h­er the de­ceased left a Will.

If there is a valid Will, the person or people named as ex­ecut­ors in the Will must apply for a Grant of Pro­bate. This legal doc­u­ment gives them the au­thor­ity to access the de­ceased’s bank ac­coun­ts, pay off debts, and dis­tribute assets to the be­ne­fi­ciar­ies as out­lined in the Will. Without pro­bate, fin­an­cial in­sti­tu­tions and other asset hold­ers, such as prop­erty or in­vest­ment com­pan­ies, will not re­lease funds or trans­fer own­er­ship to the be­ne­fi­ciar­ies.

If the de­ceased did not leave a Will (died in­test­ate), a close re­lat­ive (such as a spouse, civil part­ner, or child) must apply for let­ters of ad­min­is­tra­tion to become the estate’s ad­min­is­trator. This doc­u­ment grants sim­il­ar legal powers to the ad­min­is­trator as pro­bate does to ex­ecut­ors, al­low­ing them to manage the estate.

The ad­min­is­trator must follow the rules of in­test­acy, which dic­tate how the estate will be dis­trib­uted. Whet­h­er ap­ply­ing for pro­bate or let­ters of ad­min­is­tra­tion, the ex­ecut­or or ad­min­is­trator must ensure that all out­stand­ing debts, taxes, and li­ab­il­it­ies are settled before dis­trib­uting the re­main­ing assets to be­ne­fi­ciar­ies, en­sur­ing the estate is handled in ac­cord­ance with legal ob­lig­a­tions.

4. Estate Valu­ation in In­her­it­ance Pro­cess

Estate Valu­ation is a cru­cial step in the pro­bate pro­cess in the UK, as it de­term­ines the value of the de­ceased’s assets and li­ab­il­it­ies. This valu­ation not only helps ensure that the estate is dis­trib­uted fairly but also es­tab­lishes whet­h­er In­her­it­ance Tax (IHT) is pay­able.

Here’s how to prop­erly value an estate and what it en­tails:

1. Identi­fy All Assets

Start by listing all of the de­ceased’s assets. This in­cludes:

• prop­erty (homes, land, or other real estate),
• bank ac­coun­ts,
• sav­ings,
• in­vest­ments (such as stocks and shares),
• di­git­al assets (like crypto­cur­ren­cies or online in­vest­ment ac­coun­ts),
• pen­sions,
• life in­sur­ance policies,
• vehicles, and
• per­son­al pos­ses­sions (such as jew­ellery, art, or valu­able col­lec­tions).

⚠️ If the de­ceased held assets jointly with someone else, you’ll need to identi­fy the por­tion they owned, which may still be part of their estate.

2. Value Each Asset

For ac­cur­ate estate valu­ation, each asset must be given a fair market value as of the date of death.

• For prop­erty, you might need to get a pro­fes­sion­al valu­ation from an estate agent or a sur­vey­or.
• Bank ac­coun­ts and in­vest­ments are usu­ally easier to assess with state­ments or re­cords show­ing their value at the time of death.
• For per­son­al items of sig­ni­fic­ant value, such as an­tiques, art­work, or jew­ellery, a pro­fes­sion­al valu­ation may also be re­quired.

3. In­clude Recent Gifts

In ad­di­tion to the assets dir­ectly owned by the de­ceased, any gifts made in the seven years before death must be ac­coun­ted for. These can affect the estate’s tax li­ab­il­ity.

If the de­ceased gave away assets or money within this time frame and the total estate ex­ceeds the in­her­it­ance tax threshold, these gifts may still be sub­ject to IHT.

Ensure all sub­stan­tial gifts or trans­fers of assets are in­cluded in the estate valu­ation.

4. Identi­fy and Deduct Li­ab­il­it­ies

After listing the assets, you must also ac­count for the de­ceased’s li­ab­il­it­ies, which will be de­duc­ted from the total value of the estate. Li­ab­il­it­ies in­clude out­stand­ing debts such as mort­gages, credit card bal­ances, loans, unpaid taxes, and fu­ner­al ex­penses.

These debts reduce the estate’s over­all value and can some­times mit­ig­ate the amount of in­her­it­ance tax pay­able.

5. Submit the Valu­ation for In­her­it­ance Tax (IHT) Pur­poses

Once you’ve tal­lied the assets and li­ab­il­it­ies, you’ll need to submit the total estate valu­ation to HMRC if the estate is above the In­her­it­ance Tax threshold (cur­rently £325,000, as of 2023). Es­tates over this threshold are gen­er­ally sub­ject to IHT at 40% on the amount above the threshold.

However, there are re­liefs avail­able, such as the Res­id­ence Nil-Rate Band for family homes passed to direct des­cend­ants, which can fur­ther reduce the tax burden.

💡 Be­cause estate valu­ation and tax cal­cu­la­tions can be com­plex, es­pe­cially with large or varied assets, it’s often wise to seek pro­fes­sion­al advice from a so­li­citor, tax ad­visor, or fin­an­cial expert. Ac­cur­ate estate valu­ation is es­sen­tial to avoid pen­al­ties, dis­putes, or delays in dis­trib­uting the estate to be­ne­fi­ciar­ies.

5. In­her­it­ance Tax (IHT) Ex­plained

In­her­it­ance Tax (IHT) is a tax that may be levied on the estate of someone who has passed away, in­clud­ing their prop­erty, money, and pos­ses­sions.

In the UK, in­her­it­ance tax ap­plies when the total value of an estate ex­ceeds a cer­tain threshold, known as the nil-rate band, which is cur­rently set at £325,000 (as of 2023). Any part of the estate ex­ceed­ing this amount is taxed at a rate of 40%.

However, there are vari­ous ex­emp­tions, al­low­ances, and re­liefs that can reduce or elim­in­ate the IHT li­ab­il­ity in cer­tain cir­cum­stances.

Nil-Rate Band and Tax­able Es­tates

The nil-rate band means that es­tates valued at or below £325,000 are not sub­ject to in­her­it­ance tax. If the value of the estate ex­ceeds this threshold, only the por­tion above £325,000 is taxed at 40%.

For ex­ample, if an estate is worth £500,000, IHT will be charged on £175,000 (i.e., £500,000 minus £325,000).

However, there is an ad­di­tion­al al­low­ance called the Res­id­ence Nil-Rate Band (RNRB). This ap­plies if the de­ceased leaves their home to direct des­cend­ants (chil­dren or grand­chil­dren), al­low­ing for an extra £175,000 in ex­emp­tion.

Res­id­ence Nil-Rate Band means that if an estate in­cludes a family home, the total tax-free al­low­ance can po­ten­tially be as high as £500,000. For mar­ried couples and civil part­ners, unused al­low­ances can be trans­fer­red, ef­fect­ively doub­ling the IHT-free threshold to £1 mil­lion when both part­ners pass away.

How Gifts and Ex­emp­tions Affect to IHT?

Any gifts given by the de­ceased during their life­time are usu­ally exempt from IHT if they were made more than seven years before death.

Gifts made within seven years may be sub­ject to in­her­it­ance tax based on a slid­ing scale known as taper relief, which re­duces the IHT rate if the gift was made more than three years before death.

Ad­di­tion­ally, cer­tain gifts are exempt from IHT re­gardless of when they were made. These in­clude:

• Gifts to a spouse or civil part­ner: Trans­fers of assets between spouses or civil part­ners are en­tirely exempt from IHT.
• Gifts to char­it­ies: Dona­tions to re­gistered char­it­ies are also exempt from in­her­it­ance tax. In some cases, leav­ing 10% or more of the estate to char­ity can reduce the over­all IHT rate from 40% to 36%.
• Annual gift ex­emp­tions: Each year, in­di­vidu­als can give away up to £3,000 without these gifts being sub­ject to IHT. There are also al­low­ances for smal­ler gifts (up to £250 per person) and wed­ding or civil part­ner­ship gifts.

Re­liefs and Re­duc­tions to In­her­it­ance Tax

Cer­tain types of assets may qual­i­fy for re­liefs that reduce the tax­able value of the estate.

• Business Prop­erty Relief (BPR), for in­stance, can reduce the value of business assets passed on to heirs by up to 100%, provided cer­tain con­di­tions are met.
• Ag­ri­cul­tur­al Prop­erty Relief (APR) sim­il­arly re­duces the value of farm­land and ag­ri­cul­tur­al prop­erty that can be trans­fer­red tax-free.

Paying In­her­it­ance Tax

IHT is usu­ally paid by the ex­ecut­or or ad­min­is­trator of the estate using the funds from the estate.

The tax must be settled within six months of the death, or in­terest will be charged on the unpaid amount. If the estate in­cludes prop­erty or other non-liquid assets, it may be pos­sible to pay the tax in in­stal­ments, typ­ic­ally over a period of 10 years.

Avoid­ing or Re­du­cing In­her­it­ance Tax

Many people take steps to reduce or avoid IHT through care­ful estate plan­ning. Common strategies in­clude making tax-ef­fi­cient life­time gifts, pla­cing assets in trusts, or using al­low­ances such as the annual gift ex­emp­tion.

Con­sult­ing a fin­an­cial ad­visor or so­li­citor spe­cial­ising in in­her­it­ance tax plan­ning is often es­sen­tial for those seek­ing to min­im­ise IHT while en­sur­ing their estate is dis­trib­uted ac­cording to their wishes.

In­her­it­ance tax can be a sig­ni­fic­ant con­sid­er­a­tion for large es­tates in the UK, but with care­ful plan­ning and know­ledge of avail­able ex­emp­tions, it’s pos­sible to sig­ni­fic­antly reduce the tax burden on your be­ne­fi­ciar­ies.

Sum­mary: Key Tax Con­sid­er­a­tions

1. IHT is the primary tax burden, po­ten­tially taking a large chunk of high-value es­tates.
2. Cap­it­al Gains Tax may apply when be­ne­fi­ciar­ies later sell in­her­ited assets.
3. Income Tax could be due on estate-gen­er­ated income during ad­min­is­tra­tion.

This pro­cess can dra­mat­ic­ally affect the final in­her­it­ance amount. For estate plan­ners and be­ne­fi­ciar­ies alike, un­der­stand­ing these steps is cru­cial for ef­fect­ive wealth man­age­ment and trans­fer. The com­plex­ity often ne­ces­sit­ates pro­fes­sion­al guid­ance, es­pe­cially for high-value or com­plic­ated es­tates.

6. Debt Set­tle­ment in In­her­it­ance Pro­cess

Under UK law, the debts of the de­ceased must be settled before be­ne­fi­ciar­ies can re­ceive their share of the estate.

Ex­ecut­ors (or ad­min­is­trat­ors, if there is no Will) are leg­ally re­spons­ible for man­aging this pro­cess, en­sur­ing that all cred­it­ors are paid from the estate's assets before in­her­it­ance is dis­trib­uted to heirs.

Identi­fy­ing Debts

The first step in set­tling the de­ceased’s debts is identi­fy­ing all out­stand­ing li­ab­il­it­ies. These could in­clude:

• mort­gages,
• loans,
• credit card debts,
• util­ity bills,
• unpaid taxes, or
• any other fin­an­cial ob­lig­a­tions.

The ex­ecut­or or ad­min­is­trator will need to gather de­tails of these debts by re­view­ing the de­ceased’s fin­an­cial re­cords and con­tact­ing cred­it­ors.

Pri­or­it­ising Debts

Debts must be pri­or­it­ised before any dis­tri­bu­tion of the estate occurs.

1. The most crit­ical debts, such as se­cured debts (like a mort­gage) and fu­ner­al ex­penses, are paid first.
2. Other un­se­cured debts, in­clud­ing per­son­al loans, credit cards, and util­ity bills, are settled next. 

t’s im­port­ant to note that debts are paid from the de­ceased’s estate, not from the be­ne­fi­ciar­ies' per­son­al funds.

💡 If the estate does not have suf­fi­cient assets to cover all debts, the estate is con­sidered in­solv­ent, and cred­it­ors will be paid pro­por­tion­ally from whatever assets remain.

Using Estate Assets to Pay Debts

The ex­ecut­or or ad­min­is­trator is re­spons­ible for using the assets of the estate to pay off debts. This may in­volve li­quid­at­ing assets such as selling prop­erty, with­draw­ing money from bank ac­coun­ts, or selling valu­able pos­ses­sions.

Once debts are paid, in­clud­ing any re­main­ing costs such as legal or ad­min­is­trat­ive fees, the re­main­ing bal­ance of the estate can be dis­trib­uted to the be­ne­fi­ciar­ies.

If There Are In­suf­fi­cient Assets

In cases where the de­ceased’s debts exceed the value of the estate, the estate is de­clared in­solv­ent. This means cred­it­ors may not re­ceive full pay­ment.

In these situ­ations, the estate is dis­trib­uted ac­cording to a spe­cif­ic order of pri­or­ity, and not all debts will be fully sat­is­fied. Be­ne­fi­ciar­ies will not in­her­it any assets from an in­solv­ent estate, and they are not per­son­ally re­spons­ible for the de­ceased’s debts, except in cases where they acted as a guar­ant­or.

7. Dis­tri­bu­tion of In­her­it­ance

Once all debts and li­ab­il­it­ies are settled, the ex­ecut­or can pro­ceed with dis­trib­uting the re­main­ing assets to the be­ne­fi­ciar­ies.

The way the in­her­it­ance is dis­trib­uted de­pends on whet­h­er there is a Will or the estate is being ad­min­istered ac­cording to the rules of in­test­acy.

Read more

• When a Parent Leaves Everything to One Child
• Con­test­ing a Will
• How to Dis­in­her­it Someone?