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What Tax Do I Pay on Property, Money and Shares I Inherit?
When you inherit property, money, or shares, you won't usually face an immediate tax bill. However, you may have tax obligations later on depending on what you do with those inherited assets — and in some situations, you might need to pay Inheritance Tax yourself.
When you inherit property, money, or shares, you won't usually face an immediate tax bill. However, you may have tax obligations later on depending on what you do with those inherited assets — and in some situations, you might need to pay Inheritance Tax yourself.
Do I Pay Tax When I Inherit Something?
In most cases, no. You don't owe tax at the moment you receive an inheritance.
Any Inheritance Tax due is usually paid by the executor or administrator of the estate before your inheritance is distributed to you. They settle this from the deceased's estate (their money, property and possessions) before passing anything on to beneficiaries.
When You Might Need to Pay Inheritance Tax
HMRC will contact you directly if you need to pay Inheritance Tax yourself. This can happen if:
- The person who died gave you a gift in the 7 years before their death
- Your inheritance is placed into a trust and the trust cannot or does not pay the tax
- The executor or administrator could not or did not pay the tax before you received your inheritance
The Inheritance Tax threshold is £325,000. Tax may be due if the entire estate is worth more than this amount.
Inheriting Money and Shares
You don't pay Income Tax or Capital Gains Tax immediately when you inherit money or shares. However, you will need to pay tax on any income or gains you make from these assets after you inherit them.
Income Tax on Money and Shares
You must pay Income Tax on:
- Interest you earn on inherited money
- Dividends paid on inherited shares
The executor may give you an R185 form (estate income form) when you inherit. This shows any Income Tax that was paid on your inheritance between the date of death and when you received it. Keep this form — you'll need it if you complete a Self Assessment tax return or want to claim a tax repayment from HMRC.
Capital Gains Tax on Shares
You'll pay Capital Gains Tax if you sell inherited shares and they've increased in value since the person died. The gain is calculated from the value at the date of death, not from when the deceased originally bought them.
Inheriting Property
You don't pay Stamp Duty, Income Tax or Capital Gains Tax immediately when you inherit a property. As with other inheritances, any Inheritance Tax is usually paid by the estate before you receive the property.
If You Sell the Property
When you sell a property you've inherited, Capital Gains Tax rules depend on whether it's your main home:
- You don't pay Capital Gains Tax when you sell your own home
- You will pay Capital Gains Tax if you make a profit selling a property that isn't your main home
Important: If inheriting a property means you now own two properties, you must tell HMRC which one is your main home within 2 years. If you don't inform HMRC, they will decide which property counts as your main home when you come to sell.
If You Rent Out the Property
You may need to pay Income Tax on any rental income you receive from an inherited property.
Properties in Trust
If you inherit property held in trust, you're usually the beneficiary while the trustees are the legal owners. The trustees are responsible for paying tax on income the trust receives, though you may still pay tax on any income you receive from the trust.
The exception is a "bare trust" — in this case, you're both the beneficiary and legal owner, and you're responsible for paying tax on the trust's income.
Joint Property, Shares and Bank Accounts
You don't usually pay Stamp Duty or tax when you inherit property, shares, or money in joint bank accounts you owned with the deceased.
Understanding Joint Ownership
What you pay depends on how you owned the assets:
Joint tenants (joint owners in Scotland): You and the deceased jointly owned the assets together. You automatically inherit anything owned this way. You may pay Inheritance Tax if the entire estate is worth more than £325,000 and the estate doesn't pay it.
Tenants in common (common owners in Scotland, coparceners in Northern Ireland): You each owned a specific share — perhaps half each, or another agreed percentage. You may pay Inheritance Tax on the deceased's share if the whole estate is worth more than £325,000.
If you're unsure how your joint bank account was set up, check with your bank.
When You Must Pay the Tax
If the deceased left you their share in their will, the executor should pay any Inheritance Tax from the estate. However, if the estate doesn't have enough money to cover the tax, or the executor doesn't pay, you'll have to pay it yourself. You may need to sell the assets to cover the tax bill and any other debts.
HMRC will contact you if you need to pay.
If you inherit jointly owned property, you may also need to tell the Land Registry about the death.
Ongoing Tax Obligations
Remember that after you inherit, you'll need to pay the usual taxes on any income or profits you make from inherited assets:
- Income Tax on bank interest from inherited money
- Income Tax on dividends from inherited shares
- Income Tax on rental income from inherited property
- Capital Gains Tax when you sell inherited assets that have increased in value
Sources
This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.
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