Do you pay tax on assets or cash you inherit?

As a general rule, inheritance tax (IHT) is collected from a person’s estate when they die and can also be payable during a person’s lifetime on certain trusts and gifts. There is normally no tax to be paid if the value of the estate is below the IHT nil rate threshold of £325,000. There is also a new 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.

The remaining amount after deducting IHT exemptions, reliefs and the nil rate band is liable to IHT at 40%. A reduced rate of IHT of 36% applies where 10% or more of a deceased’s net estate is left to charity. In some circumstances, the inheritor may be liable to pay IHT if the deceased person’s estate can’t or doesn’t pay. There can also be IHT payable by the inheritor, if an inheritance is put into a trust that doesn’t pay the IHT due. HMRC will contact inheritors that are required to pay IHT.

Planning note

The inheritor is also liable to pay tax on any profit they make from inherited cash or assets. For example, where a property is inherited and then rented – income tax would be due on the rental income (subject to the usual rules). Likewise, if assets are inherited and subsequently sold, capital gains tax would be due on the increase in value since the person died.

There are legitimate ways to minimise any IHT due to the Exchequer. These can include giving away surplus income, making gifts before you die (known as Potentially Exempt Transfers) and giving gifts to charity. We would be happy to help you look at your estate planning options.

Posted in Inheritance Tax

Exeter Accountant MJ Smith & Co

Celebrating 25 years of excellence.

Free 1st Meeting
Fixed Fees
Free Support!

Find out more

Client Portal Login

Forgot Password?

Latest News

Tax Diary May/June 2018

1 May 2018 – Due date for corporation tax due for the year ended 30 July 2017.19 May 2018 – …
Read More

Let property disclosure campaign

Landlords that receive letting income should notify HMRC by 5 October after the end of the tax year for which …
Read More

Non-resident landlord’s scheme

The Non-resident landlord (NRL) scheme is a special scheme for the UK rental income of non-resident landlords. This includes companies …
Read More

Twitter Feed