When you inherit money in the UK, you might wonder if you need to tell HMRC about it. The short answer is: it depends. Let’s unpack this topic and give you the full picture.
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Inheritance Tax: The Basics
In most cases, you won’t need to inform HMRC directly when you inherit money. The executor of the estate usually handles the Inheritance Tax (IHT) before distributing the assets. However, there are situations where you might need to get involved.
Do I Have to Inform HMRC If I Inherit Money in the UK?
You may need to inform HMRC if you inherit money or assets in the following situations:
- If the value of the deceased’s estate is above the IHT threshold, you may need to complete an IHT form and report the inheritance to HMRC.
- If the deceased gave you a gift in the 7 years before they died, it may be subject to IHT, and you should inform HMRC.
- If the inheritance is put into a trust and the trust does not or cannot pay the IHT, you may need to inform HMRC
Other Taxes to Consider
In addition to IHT, you may also need to consider other taxes when inheriting money or assets:
- Income Tax: You may need to pay Income Tax on any profit you earn from the inherited assets, such as rental income from a property or dividends on shares.
- Capital Gains Tax: If you sell any inherited assets that have increased in value since the date of the deceased’s death, you may need to pay Capital Gains Tax on the gains made.
| Tax | Description | When Applicable |
|---|---|---|
| Inheritance Tax | Tax on the estate of the deceased | Estate value above IHT threshold |
| Income Tax | Tax on income from inherited assets | Earning income from inherited assets |
| Capital Gains Tax | Tax on gains from selling inherited assets | Selling inherited assets that have increased in value |
Do I Need to Pay Inheritance Tax on Gifts?
Yes, gifts made in the 7 years before the deceased’s death may be subject to IHT. Some gifts, such as wedding gifts and charitable donations, are exempt from IHT.
Insider’s Tips
It is essential to seek professional advice from a solicitor or tax advisor to understand your specific tax obligations related to the inheritance. Keep records of how you valued the estate and any tax payments made, as HMRC can ask to see these records up to 20 years after IHT is paid.
Do I pay tax on inherited money in the UK?
You don’t usually pay tax on the inherited money itself. However, you might pay tax on any income generated from it.
How much money can you inherit before paying tax in the UK?
The current IHT threshold is £325,000 per person. Anything above this might be subject to 40% tax, but there are exceptions and allowances.
Do I need to declare inheritance money to HMRC?
In most cases, no. The executor usually handles this. But if you receive income from the inheritance, you’ll need to declare that.
How long do you have to pay inheritance tax?
IHT should be paid within six months of the person’s death to avoid interest charges.
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