As the Executor of a will do I need to deduct Inheritance Tax for the beneficiary?

Question: I am the Executor of a Will and I am about to pay out various legacies.  Some of these are quite substantial and the beneficiary would have an Inheritance Tax liability.  Do I have to deduct the tax that might be paid or can I simply pay out to the beneficiary?

Answer: Recent changes introduced by the Finance Act of 2010 have simplified the payment of Inheritance Tax and have made the job of an Executor less onerous.  Up to this year an Executor had a secondary liability to pay Inheritance Tax for a beneficiary.  Therefore it was good practice for this tax to be effectively deducted by the Executor and paid over to the Revenue.

However this year’s Finance Act has changed the rules so that the person who receives the inheritance is now the accountable person.  There is one exception to this rule in that the Executor still has a secondary liability where the beneficiary is non-resident in Ireland.

It might be no harm to alert the beneficiaries to the need to file a tax return.  Under the previous rules returns were due and tax payable usually within four months after the date of the Grant of Probate (although it is possible for the tax to fall due on an earlier date).  The new rules provide that where this “due date” occurs during the period from 1st January to 31st August in any year the tax should be paid and return delivered on or before 31st October in that year.  Where the due date occurs in the period from 1st September to 31st December in any year the tax shall be paid and return delivered by 31st October in the following year.  As you would expect, a late return may incur penalties and interest.

The information contained in this article is for general information purposes only and does not constitute legal or other professional advice.  Specific legal advice should be sought on any particular matter.

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