Understanding Inheritance Tax & Estate Liquidity

How Inheritance Tax is calculated, when it's payable, and how estates are typically settled in the UK.

UK Process Overview | Illustrative

Estate Details

Date of Death (Scenario)

Total Estate Value

Nil Rate Band

Residence NRB

Transferable

Cash Available

Funeral Costs ?

Your Estimated Position

Estimated estate value £1,200,000

Total allowances applied £500,000

Taxable estate £700,000

Estimated IHT liability (40%) £280,000

The Estate Liquidity Gap

Estate cash available £50,000

Funeral costs £8,000

IHT due £280,000

Tax may be due before sufficient cash is available without selling assets or arranging funding.

Potential Shortfall £238,000

What Happens After Death – and When Tax Is Due

A typical timeline from death to estate distribution

Death & Admin

Day 0 – Week 2

Death registered
Will located
Executors identified
Funeral arranged

Valuing Estate

Week 2 – Month 3+

Property valuations
Investment statements
Bank balances confirmed
Reliefs assessed
7-year gift review

IHT Payment Due

6 Months

IHT calculated & submitted
Funding arranged
Interest if late

Tax Payable £280,000

Probate Granted

Month 7–8

Application submitted
Documents verified
Grant issued

Assets still not fully liquid

Distribution

Month 12+

Accounts closed
Investments sold
Property transferred
Beneficiaries paid

Death & Admin

Death registered
Will located
Executors identified
Funeral arranged
Institutions notified

Valuing Estate

Property valuations
Investment statements
Bank balances confirmed
Reliefs assessed
7-year gift review

IHT Due

IHT calculated & submitted
Funding arranged
Interest if late

Tax Payable

£280,000

Probate

Application submitted
Documents verified
Grant issued

Distribution

Accounts closed
Investments sold
Property transferred
Beneficiaries paid
Estate finalised

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