You may want to ensure that your loved ones inherit as much of your estate as possible after you die. Prestige Tax and Trust Services asks; do beneficiaries have to pay tax on inheritance?
If you want to ensure your estate is passed on to your loved ones when you die, you need to write a will. This is a legal document where you outline who will inherit your assets (beneficiaries) and who will manage your estate (executors). In the vast majority of cases, your beneficiaries won’t be legally required to pay taxes on assets they inherit from your estate at the time of their inheritance.
However, if they accrue profit from assets they inherit from your estate e.g. rental income from property or dividends from shares, they’ll be required to pay income tax on said profit to HM Revenue and Customs (HMRC). Also, if they later choose to sell any assets such as shares or property they inherited from your estate, your beneficiaries will be obligated to pay capital gains tax to HMRC. There are different tax rules involved when beneficiaries inherit joint property, shares and bank accounts.
In most cases, your estate will be responsible for paying its own inheritance tax to HMRC and this task falls to its executor. However, you can state in your will that inheritance tax should be paid out of the assets inherited by your beneficiaries, although the executor will be responsible for ensuring this is carried out.
There are some circumstances, however, where the responsibility of paying inheritance tax will fall directly to your beneficiaries. This could be the case if:
- Your estate doesn’t have the funds to meet its inheritance tax obligations.
- You place your beneficiary’s inheritance into a trust and the trust can’t afford to pay its inheritance tax bill.
- You gave the beneficiary a ‘gift’ during the last seven years of your life. However, if the gift was given more than seven years before you died, beneficiaries may not have to pay inheritance tax on it. Gifts given between married couples or civil partners are exempt from inheritance tax, as long as both spouses live permanently in the UK.
Prestige Tax and Trust Services
UK inheritance law can be complex. When you write your will, it’s advisable to enlist help from legal specialists such as Prestige Tax and Trust Services. Our team has the knowledge, experience and skills required to ensure you write a will that provides for your loved ones effectiv