Welcome to the Final Step: Paying the Bill!
You’ve learned how to calculate Inheritance Tax (IHT), but now comes the practical part: Who actually writes the cheque to HMRC, and when do they have to do it? In the ACCA TX syllabus, inheritance tax administration is strictly focused on who pays and the due dates. Don't worry if this seems like a lot of dates to remember—we’ve broken it down into simple rules and analogies to help you keep it all straight!
1. Who is Responsible? (The "Payer")
Think of IHT like a group dinner at a restaurant. Sometimes the person who ordered the meal pays, and sometimes the person hosting the party pays. In IHT terms:
For Lifetime Transfers (CLTs):
When an individual makes a Chargeable Lifetime Transfer (such as a gift into a trust), the Donor (the person making the gift) is primarily responsible for paying the lifetime tax. However, if the donor does not pay, HMRC will look to the Trustees of the trust to pay it.
For Gifts Made Within 7 Years of Death:
If the donor dies within 7 years of making a gift, tax may become payable on a Potentially Exempt Transfer (PET), or additional death tax may be due on a CLT. In this situation, the Donee (the recipient of the gift, or the trustees in the case of a CLT) is primarily responsible for the tax arising on that gift.
Common Mistake: Many students assume the estate pays for everything on death. Remember: for lifetime gifts that become taxable because of death, the person who received the gift is normally the one who pays the death tax on it!
For the Death Estate:
The Personal Representatives (the executors named in the will or the administrators if there is no will) are responsible for paying the tax on the assets in the deceased person's estate. They pay HMRC out of the deceased person's estate assets.
Key Takeaway: Always identify the transfer: the donor or trustees pay lifetime tax on CLTs, the donee or trustees pay tax arising on lifetime gifts on death, and personal representatives pay tax on the death estate.
2. When Must the Tax be Paid? (Deadlines)
This is the most heavily examined part of this topic. The due date depends on whether the tax is payable on a lifetime transfer or arises as a result of death.
A. Lifetime Tax on Chargeable Lifetime Transfers (CLTs)
For lifetime tax arising when a CLT is made, the deadline depends on the date of the transfer during the tax year:
1. Gifts made between 6 April and 30 September: Tax is due on 30 April of the following calendar year.
2. Gifts made between 1 October and 5 April: Tax is due 6 months after the end of the month in which the gift was made.
Memory Aid: Think of the "Summer/Winter" rule:
- Summer gifts (6 April to 30 September) get a longer grace period and are not due until the next 30 April.
- Winter gifts (1 October to 5 April) follow the standard 6-month rule.
Example: A CLT made on 20 May 2025 has a due date of 30 April 2026. A CLT made on 12 November 2025 has a due date of 31 May 2026 (6 months after 30 November 2025).
B. Tax Arising on Death (Death Estate and Lifetime Gifts)
For all inheritance tax that becomes payable because of a death, the due date rule is identical:
6 months after the end of the month in which the death occurred.
This single rule applies to both:
- Tax on the deceased's death estate (paid by personal representatives), and
- Tax arising on lifetime transfers made within 7 years of death (PETs becoming chargeable or additional tax on CLTs, paid by the donee or trustees).
Example: If an individual dies on 14 January 2026, the end of that month is 31 January 2026. Six months later is 31 July 2026. This applies to both the estate tax and any tax due on lifetime gifts made in the preceding 7 years.
Quick Review: The Due Dates
CLT lifetime tax (6 April – 30 September): 30 April following.
CLT lifetime tax (1 October – 5 April): 6 months after the end of the month of the transfer.
Death estate tax: 6 months after the end of the month of death.
Lifetime gifts becoming taxable on death: 6 months after the end of the month of death.
3. Summary Checklist
To master payment of inheritance tax, ask yourself these two questions for every exam scenario:
1. Who is responsible? (Donor, Trustees, Donee, or Personal Representatives?)
2. When is it due? (Is it lifetime tax on a CLT under the 30 April / 6-month rule, or is it tax arising on death due 6 months after the end of the month of death?)
Key Takeaway: Precision is essential. Always count 6 months from the end of the calendar month in which the event took place, not from the date of the event itself!