Will you pay tax on your inheritance?

Source: HM Revenue & Customs | | 06/02/2019

If you inherit property, money or shares you are usually not liable to pay tax on the inheritance. This is because any Inheritance Tax (IHT) due should be paid out of the deceased’s estate before any cash or assets are distributed to the heirs.

There is normally no tax to be paid by the deceased’s estate if the value of the estate is below the IHT nil rate threshold of £325,000. There is also an IHT main residence nil-rate band (RNRB) that was introduced in April 2017. The RNRB will ultimately allow for a £175,000 per person transferable allowance for married couples and civil partners when their qualifying main residence is passed down to children after their death. The RNRB is in addition to the £325,000 IHT threshold.

If you receive an inheritance, you will be liable to Income Tax on any profit earned after the inheritance, such as dividends from shares. You may also need to pay Capital Gains Tax (CGT) on any increase in value on assets after the date of inheritance, if the same assets are sold or otherwise disposed of.

The main exception is if you received a gift during a person's lifetime. These lifetime transfers are known as Potentially Exempt Transfers (PETs). These gifts or transfers achieve their potential of becoming exempt from IHT if the taxpayer survives for more than seven years after making the gift. If the person making the gift dies within 3 years of making the gift, then IHT is payable as if the gift was made on death.

A tapered relief is available if death occurs between three and seven years after the gift is made. There are insurance products such as a seven-year term assurance policy that can be used to reduce the amount of IHT due should the taxpayer pass away within seven years of making a gift. You may also have to pay IHT if your inheritance was put into a trust and the trust can’t or won’t pay any tax due.



Contact Us

13 West Street
Exeter
Devon
EX1 1BB
Tel: 01392 823999

Also in Seaton:

8-10 Queen Street
Seaton
Devon
EX12 2NY
Chris Hammett
Tel: 01297 624188  

 

Cookie Policy

Latest News

Gifts out of disposable income
13/02/2019 - More...
There is an annual Inheritance Tax exemption of £3,000 for gifts. This exemption can also be carried forward to the

What work is covered by the CIS scheme?
13/02/2019 - More...
The Construction Industry Scheme (CIS) is a set of special rules for tax and National Insurance for those working in the

When do you pay Capital Gains Tax?
13/02/2019 - More...
Capital Gains Tax (CGT) is normally charged at a simple flat rate of 20% and this applies to most chargeable gains made

Newsfeed Search


Newsletter

With our newsletter, you automatically receive our latest news per e-mail and get access to the archive including advanced search options!

» Sign up for the newsletter
» Login